- August 8, 2012
A sputtering start to this year’s monsoon rains has forced farmers in India to put their gold-buying plans on hold.
With crops wilting without the heavy seasonal rains that usually start in June, some farmers say it is unlikely they can afford the gold jewelry that is the centerpiece of most Indian weddings.
As the world’s biggest consumer and importer of gold, India helps set the direction of gold prices. The root of much of the demand comes from India’s countryside, home to hundreds of millions of farmers who often bear the burden of adorning their daughters, nieces and sisters with solid gold necklaces, bracelets and earrings.
The Bombay Bullion Association, India’s main gold industry group, estimates that the volume of the country’s second-quarter gold imports slid 60%, to 128 tons, from the year-earlier period, due largely to the weak monsoon so far. Before the start of rainy season, the group forecast a roughly 20% drop in gold imports for 2012, due to a weaker rupee, which makes gold more expensive for buyers in India, and widespread closings of jewelry stores earlier this year to protest new taxes. Now, it is projecting a drop closer to 40%.
Gold investors usually keep a close eye on the weather in India, and many of them are wagering that the weak rainy season will further undermine gold prices that are down almost 10% from the 2012 highs hit in late February.
Gold futures on Tuesday were down $1.70 an ounce at $1,611.20.
Azhar Sheikh Azhar, a 32-year-old farmer with an eight-acre property in Dahegaon Village, India, canceled plans for a lavish wedding with gifts of gold jewelry for his niece this year.
“Where is the money for that when we are having trouble thinking of the next meal for the family?” Mr. Azhar said.
Michael Shaoul, chairman of Marketfield Asset Management LLC, a mutual-fund adviser with more than $2.5 billion under management, has recently bet on lower gold prices as the outlook for India’s harvests worsened.
“In India, the monsoon is another negative factor” in addition to high interest rates, which encourages investors to keep cash in relatively high-yielding savings accounts, Mr. Shaoul said.
Adam Sarhan, founder and chief executive at asset-management firm Sarhan Capital, New York, cited the poor weather in India as a reason for recently dumping gold after holding the precious metal in his portfolio for more than a decade.
“As long as [Indian] demand continues to wane, we’re going to continue to see downward pressure on the price of gold,” Mr. Sarhan said.
To be sure, other factors could quickly overwhelm the gold market and send prices rising. Decisive moves by the world’s central banks to print money in order to stimulate the economy is likely to send gold surging, said James Dailey, lead portfolio manager at TEAM Asset Strategy Fund. Any easing could weaken the dollar or euro—or both—and send investors looking for a hedge into gold, he said.
“The marginal demand from investors in the developed world would overwhelm anything that is going on domestically in India,” he said.
Moreover, some investors point out that India’s dominant role in the gold market has been fading in recent years as its imports of the precious metal slowed.