The Hindu Business Line : Poor monsoon may affect gold demand

WITH the Iraq war over and the market starting to look at economic factors for direction, the forecast of sub-normal monsoon for India in 2003 could prove to be somewhat dampening for gold.

The yellow metal is widely expected to trade in the range of $330-350 an ounce over the coming months.

However, below normal precipitation in India - the world's largest importer and consumer of gold - for the second year in a row is sure to affect rural income growth prospects and thereby consumption demand for gold and silver.

Relatively high prices will also impact demand. Agriculture, on which nearly 70 per cent of the population is dependent for livelihood, contributes to nearly a quarter of the GDP.

Almost two-third of India's gold and silver consumption is in the rural areas; and the prospects of agriculture and income growth directly impact demand.

But it is perhaps too early write off the Indian monsoon. If the south-west monsoon sets in on time with a flourish and vigorously covers the entire country in about four weeks, the sentiment can change by mid-July. Consumer confidence will return once the monsoon takes off well.

Indian demand for gold is known to be both income elastic and price elastic.

Another feature to be borne in mind is the untested nature of the India Meteorological Department's latest forecast based on a new set of parameters. Quite apart from global economic factors including equity markets and US dollar movements, the bullion market will be watching closely developments on the weather front in India over the coming months.

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Poor monsoon may affect gold demand