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Gold Shines This Fall Festival in India

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Gold Shines This Fall Festival in India

Today is the celebration of Raksha Bandham, and the mood across India is joyous. A soaking monsoon this season has broken a severe two-year drought, blessing farmers with bountiful crops and bringing relief to millions of people suffering from critical water shortages. The end of the drought has lifted spirits throughout the nation, boosting consumer confidence and forecasts of gold demand in India this festival season.

Diwali celebration

The 2016 festival season began on August 7th, and runs through December 15th.  Chief among these are the five-day Festival of Lights (Diwali) which starts with Dhanteras on October 28, and ends on November 1 with Bhaiya Dooj.

Diwali is also the name of the middle day of the festival, and is considered by many to be the most important holiday on the Hindu calendar. (October 30th this year.)

Agriculture directly or indirectly provides a livelihood more than half of India's 1.2 billion people, who account for nearly 65% of national gold demand. As a result of this year's good harvest, Indian gold demand this festival season is expected to be high.

Rice paddies in Karnataka state, India

The fall festival season arrives soon after the monsoons abate, with the wedding season following after. This year's monsoon is the best since the 1990s, giving people a reason to celebrate, and the means to do so. For the Indian middle class and wealthy, gold makes an attractive investment beyond its function as a hedge against inflation.

Inflation has stalked the Indian economy like a tiger since independence, which explains a good portion of gold's allure for its citizens. Although Reserve Bank of India Governor Raghuram Rajan has recently managed to tame the inflation demon, his resignation in two weeks raises concerns that his successor will allow inflation to return.

Did You Know?

Indian gold demandThere is an estimated 25,000 metric tons of gold hiding in Indian households

The 2016 fall wedding season in India begins later than usual, in early November. Gold jewelry makes up almost 50% of the cost of an average wedding in India, accounting for a great portion of overall Indian gold demand.

With the 2017 Chinese New Year occurring earlier than usual (January 28), Indian gold demand will overlap Chinese gold demand to a greater extent, pushing prices higher. This is a good reason for both Indians and Chinese to do their gold shopping early.

Gold sales in India for the first half of the year encountered a "perfect storm" of higher prices due to increased smuggling, a rise in excise duties, a nationwide strike by jewelers, and high Brexit-induced safe haven gold demand in Europe. This led to sharply lower Indian gold demand, but all those deferred purchases are set to hit the market in the second half of the year.

lakshmiA weaker US dollar is making gold more affordable in Indian rupees, and gold prices have fallen into a tight channel $20 below this year's peak. This should encourage a sharp increase in Indian gold demand in the second half of 2016, especially for Diwali. Lakshmi, the goddess of wealth and prosperity, is invited into the home on Diwali night by opening doors and windows, and lighting small oil lamps.  Gifts of gold are exchanged, and new items purchased in the belief that signs of prosperity on Diwali will bring actual prosperity through the rest of the year.

 

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

About the Author

Everett Millman

Steven Cochran

Precious Metals Market Analyst
BS University of South Florida (2002)

A published writer, Steven's coverage of precious metals goes beyond the daily news to explain how ancillary factors affect the market.

Steven specializes in market analysis with an emphasis on stocks, corporate bonds, and government debt. He writes a monthly review of the precious metals markets for SurvivalBlog.com.

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