Monsoon fears overpower demand for gold

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Gold demand in India remained dull this week following concerns over a weak monsoon forced farmers to cut back spending.

Nearly two-thirds of the country’s gold demand comes from rural areas where wealth is parked in jewellery for millions with no access to banking system.

“Demand is weak compared to last month,” said Mangesh Devi, a jeweller from Maharashtra whose customers are sugarcane and vegetable growers.

“Frmers are giving priority to buy seeds and fertilisers. They don’t have excess money to buy gold after last year’s drought ,” Devi said.

Normally, the farmers start sowing summer-sown crops with the arrival of monsoon rains in June.

Policymakers in India are worried about the prospect of a second straight year of drought after the country’s weather office forecast below-average rains this summer. Monsoon rains in June-September are vital for half of the country’s farmland that lacks irrigation.

A sharp slide in Indian demand could add to pressure on global gold prices. India was the precious metal’s top consumer in 2014, and the second biggest after China in the first quarter of 2015.

“Demand will be weak in the next few weeks unless prices fall below Rs 26,000 per 10 gm,” said a Mumbai-based bank dealer.

Demand elsewhere in Asia also remained tepid due to expectations of a further drop in gold prices and better returns from surging equities in China.

 

 

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