El Niño concerns spread to gold
By GCRU Gold News on Saturday, May 31 2014, 08:19 - Permalink
Concerns about the effect of El Niño, which have hit commodities markets since the start of the year, are spreading to gold, as some analysts point to the weather phenomenon’s potential impact on India’s monsoon season.
India’s rural farming areas account for about 60 per cent of the country’s gold purchases, and the strength of the monsoons has a direct impact on gold demand. “A good monsoon season is positively correlated with agricultural crop yields; in turn farmers’ incomes and higher gold demand,” said Ms Tully.
A bad monsoon could hit crops and lead to higher food inflation, prompting higher income earners to buy gold. However, a larger impact on the gold market is likely to come from poor crops and rising food costs forcing farmers to “sell part of their gold holdings as well as leaving less money for gold purchases”, UBS added.