Examining the Relationship Between India’s Monsoon Season and Gold Price Fluctuations

Traders may not typically think about the weather when planning their portfolios, yet so many factors can influence gold prices beyond the surface level. Understanding the relationship between India’s monsoon season and its local gold demand can offer a more well-rounded view of gold’s current and upcoming performance rates this year.

India’s monsoon season runs from June to September, where large portions of the nation receive approximately 90% of its rain for the entire year. How well the monsoon season delivers directly impacts the harvest season for Indian farmers. India’s rural areas, including harvesting farmers, account for 60% of India’s gold purchases.

Essentially, a heavy monsoon season that offers high crop yields would lead to high gold demand and excellent gold performance. Bountiful harvests from solid rain allow farmers to spend their income on extravagant purchases and investments, like gold. In fact, gold purchases in India typically spike during the third and fourth quarters of the year because of the monsoon season.

While this tie may seem far-fetched in the grand scheme of gold pricing, India’s influence on the gold market is much larger than many may realize. India is the number two gold-consuming market in the world, meaning its monsoon season can directly affect international gold prices.

India’s monsoon season produces approximately 70% of the rainfall necessary for the nation’s crops, aquifers, and reservoirs. This year, India’s monsoon season began rather slowly, though meteorologists believe the last few weeks of the season will deliver enough rain to cover the nation’s needs. If so, India should see gold demand picking up on the tail-end of the season as harvesters enjoy their yields and can invest.

While the monsoon season usually starts in June, the official start this year was July 2, according to the India Meteorological Department. Mike Tannura, founder of T-Storm Weather, agrees that the current rainfall patterns show promise for enough moisture across the Northwest. Joe Cavatoni of the World Gold Council, who works closely with the WGC’s India-based efforts, stated that rural locals believed July’s rainfall was adequate.

While the rainfall levels fell back a bit during August, the moisture quickly picked back up in September. With this return, Cavatoni sees a surge in gold-buying as the monsoon season ends and the holiday season begins.

India’s auspicious festival season celebrates the Hindu auspicious wedding dates, which run from October through December. The wedding season typically increases gold demand as families purchase more precious metals as a tradition to celebrate their loved ones.

“Even though it is potentially jewelry purchases or foreign coin demand, (the purchases are) a form of savings, a long-standing, historical form of savings,” Cavatoni explained.

Sachin Patel, the executive director of metals products for CME Group in Singapore, agrees that both the monsoon season and upcoming wedding season in India create the perfect combination for surging gold demand, explaining why prices typically pick up at the end of each year.

“These big, auspicious events, whether they’re religious or cultural festivals or weddings, tend to be a driver of immediate physical demand and are a fairly unique dynamic compared to what would drive gold demand in other countries,” Patel explained.

Jewelry consumption remains the top source of gold demand in India. For the first half of 2023, jewelry demand totaled 207 tons, accounting for the majority of the nation’s total demand of 275 tons during the same period. What makes India so unique in this sense is how individuals purchase jewelry for cultural and significant purposes and to store value as an investment.

“Historically, a lot of Indian farmers buy gold or buy gold jewelry because they don’t have access to bank accounts,” Will Rhind, the CEO of GraniteShares, explained. “They use gold as a direct way to store wealth.”

Despite the current monsoon season and upcoming holidays, jewelry consumption in India dropped by 8% this quarter, likely because of the spiking gold prices that Indian buyers simply cannot match. Gold continues increasing in price as inflation runs rampant internationally, and investors and central banks flock to the commodity for security purposes.

“The price of gold is hovering around all-time highs. And clearly, when that happens, it just makes it tougher from a consumer perspective for people to keep buying at the same pace as before,” Rhind explained.

Even with the rising gold prices, the World Gold Council still believes that “the success – or otherwise – of the monsoon season will also have a considerable bearing on demand for the remainder of the year.”

As always, investors should consult their financial advisors before making any portfolio decisions.

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