Normal Rains Could Drive Indian Gold Demand

The Wall Street Journal, Biman Mukherji

Gold demand in India could rise to as much as 1,000 metric tons in the current fiscal year if the monsoon kept its course for normal rains, boosting farm output and farmers' income, the president of the Bombay Bullion Association said Monday.

India, the world's largest consumer of the yellow metal, is estimated to have bought 930 tons of gold in the fiscal year ended March 31, Prithviraj Kothari said.

The demand last year, when plentiful rains led to a record food-grain harvest, was higher than the average of 700-800 tons a year. The country, where more than 60% of the farmland is rain-fed, depends on the June-September monsoon season for most of its rains.

Sales of precious metals typically rise when rains are good as farmers, many without bank accounts, buy gold and silver ornaments when they have a bumper farm output and surplus income. As much as 70%-75% of India's gold demand comes from rural buyers, mainly comprising farmers.

Monsoon rains this year are forecast to be normal and they have set in on Sunday, two days in advance, over Kerala, the southern state through which the weather system enters India's mainland.

"It [monsoon] has come at the right time," Mr. Kothari said.

If rains were below normal, "then gold demand will be no more than 650-700 tons," Mr. Kothari added.

The Bombay Bullion Association is India's top gold trade body.

According to him, bullion demand tapered off after brisk sales during the key Hindu festival of Akshaya Trithiya, on May 6 this year.

"The market is dull. There is no demand for silver. Gold is quoting at a discount" to international prices, he said.