Precious Metals Weekly
Group Economics Macro & Financial Markets Research
El Niño & Indian gold demand
Georgette Boele, tel,+31 20 6297789
4 June 2015 • • • • •
Weather related effects could impact farmer income and inflationary pressures in India Lower farmer income will probably result in lower gold demand… …while higher inflationary pressures could result in more gold demand as safe-haven asset The Reserve Bank of India will likely remain vigilant and might end its easing cycle… …therefore, it is likely that net-net gold demand will decrease in such an environment
What is the Indian monsoon?
gold demand could increase because of it being regarded as
The Indian monsoon primarily affects India and its surrounding
an inflation hedge and safe-have asset. The Reserve Bank of
water bodies. It blows from the northeast during cooler months
India is closely watching the development of the monsoon and
and reverses direction to blow from the southeast during the
its impact on inflation. It might end its easing cycle if inflation
warmest months of the year. This process brings large
pressures start to rise.
amounts of rainfall to the region during June and July. source: Britannica
Quarterly Indian consumer gold demand Metric tonnes
What is El Niño? El Niño is a natural phenomenon caused by unusually warm ocean temperatures in the Equatorial Pacific, that leads to significant deviations from normal weather patterns. In particular, El Niño can lead to a disturbance in rainfall patterns. The lead time between measured unusual water temperatures and disturbed weather patterns can be as long as one year. Among these consequences is increased rainfall across the southern tier of the US and in Peru, which has caused
400 350 300 250 200 150 100 50 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
destructive flooding, and drought in the West Pacific,
Consumer demand India
sometimes associated with devastating bush fires in Australia. Observations of conditions in the tropical Pacific are
Source: Thomson Reuters Datastream GFMS
considered essential for the prediction of short term (a few months to 1 year) climate variations. El Niño can be seen in measurements of the sea surface temperature. Source: National Oceanic and Atmospheric Administration (NOAA)
How do these weather effects impact Indian gold demand? The timely arrival of the monsoon in India (June-September), its distribution and quantity are critical to crop sowing during main summer growing season. Droughts could threaten sugar and cotton crops. The possibility of an El Niño weather
What can we conclude from all of the above? The occurrence of El Niño could lower gold demand for auspicious ceremonies and weddings. However, demand for gold for inflation-hedge and safe-haven could increase. We judge that the first effect is stronger so that net-net there will be temporary lower Indian gold demand.
ABN AMRO forecasts End period Gold Silver Platinum Palladium
04-Jun Close 14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 1,185 1,184 1,100 1,050 1,000 950 1,183 900 850 800 15.7 16.6 16.5 15.0 15.5 16.0 16.5 17.0 17.5 18.0 1,216 1,141 1,100 1,150 1,200 1,250 1,300 1,350 1,400 1,106 798 736 756 650 675 700 700 725 750 750
ceremonies and weddings resulting in lower demand for gold.
Average Gold Silver Platinum Palladium
Q1 15 1,218 16.7 1,194 786
On the other hand, weaker crops could have an upward effect
Source: ABN AMRO Group Economics
phenomenon occurring this year has attracted attention. El Niño conditions usually coincide with a period of a weak monsoon and rising temperatures in India. This could greatly damage agricultural crops in India. On the one hand, weaker crops could result in lower income for farmers. Therefore, there would be less money being available for auspicious
on agricultural prices. If agricultural prices were to rise sharply,
Q2 15 1,142 15.8 1,120 693
Q3 15 1,075 15.3 1,125 663
Q4 15 1,025 15.8 1,175 688
2015 Q1 16 Q2 16 Q3 16 Q4 16 1,115 975 925 875 825 15.9 16.3 16.8 17.3 17.8 1,154 1,225 1,275 1,325 1,375 707 700 713 738 750
2016 900 17.0 1,300 725