WE NEED A GOOD MONSOON....SOON!!!!

Every year, the entire country - be it the big time investors or the small hard working farmers- all await for the most important months of the year- The June- September Monsoons.

Though India has been in the limelight for its technological, infrastructural and outsourcing developments, about two-thirds of the country's one billion people depend on farming for a livelihood and agriculture accounts for about one-quarter of the gross domestic product.

A good monsoon strengthens the rural consumption power which in turn creates an impact on growth. This clearly indicates that growth of the Indian Economy is largely dependent on agriculture, a good harvest and more importantly a good monsoon.

This entire cycle affects not only then rural areas but also the urban economy. Equities, real estate, precious metals, commodities etc all are somewhere or the other, directly or indirectly affected by monsoons.

India can hardly afford a dreadful monsoon as it has already been facing a setback due to global slowdown, domestic inflation and an uncertain economy.

Though monsoons have recovered in the past 10 days, India is still under the shadow of a drought. The entire economy now depends on what will happen by August end.

Talking about precious metals, gold has not shown as much movement as it had in 2011. A year ago gold was heading toward $2000 an ounce but has dropped back to the $1500 range and has been lying there since quite some time. However in the Indian markets, gold is much costlier than what it was last year- thanks to the appreciation of the rupee.

Another factor that has played an important role in gold prices in India is the monsoon. India- which the largest consumer of gold in the world has been facing a very weak downpour. India’s rainfall total this year is about 20 percent below its 50-year average, and possible drought will adversely affect gold consumption as the focus would turn to food and survival

So far, in June, rain deficit has already reached 41%. Rural India still accounts for 60% to 70% of gold sales in the country and if the monsoon is below normal this year, gold purchases will struggle to cross the 600 tonne mark this year.

India's demand for gold has reportedly fallen far more drastically than that of the world. In the first quarter of 2012, domestic demand for the yellow metal witnessed a 30% crash year on year. Imports too have crashed. India's gold and silver imports have fallen 52% in May. April too witnessed a decline, with gold and silver down by 33% to $3.1 billion. Imports of the yellow metal had already shrunk in the January to March 2012 period.  

Though India's annual monsoon rains had covered almost half of the country at the start of June, there has been a palpable slowdown, with no signs of a pick-up and a forecast of bright, sunny days. 

Where the entire country eagerly waits for a heavy downpour, analysts are pessimist about a good monsoon and predict a dark cloud that will bear no rainfall

GOLD SILVER GOING ZIG ZAG

Gold and silver prices continued to move upwards as both precious metals edged up on Thursday. These metals rose despite the decline of the Euro and perhaps due to the appreciation of other “risk currencies” including Aussie dollar and Canadian dollar. The recent U.S reports didn’t seem to have much of an effect on the financial markets: U.S jobless claims declined 6k to 361k; U.S trade balance deficit (goods and services) declined to $42.9 billion in June 2012. This news may have contributed to the appreciation of the USD.

Gold edged up again on Thursday by 0.26% to $1,620.2; Silver rose by 0.08% to $28.10. During the month, gold edged up by 0.35%; silver, by 0.66%

This entire week, commodity prices played around the following lines- 

Great Britain PPI input- UK Producers Price Index for Input Prices rose by 1.3 per cent in July in monthly terms up from a revised 2.9 per cent decrease in June, while the PPI Input Prices annually fell by 2.4 per cent in July up from a revised 3 per cent decrease in June, according to the Office of National Statistics. The monthly PPI input prices increased less than the expected 1.5 per cent increase and annually dropped more than the forecast at 1.50 per cent decrease. Furthering this, precious metals edged up.

US Federal Budget Balance- Uncertainty over whether the US Federal Reserve and European Central Bank will take further steps to boost their economies has so far deterred a stronger move in gold prices, and bullion remains below last September’s record high at around $1,920 an ounce. Should the Fed signal it intends to implement a third round of monetary easing at the next meeting, it would probably boost precious metals, which are seen as a hedge against inflation.

Chinas trade Balance-  China’s General Administration of Customs said exports grew just one percent in July year-on-year to $176.9 billion, while imports rose 4.7 percent to $151.8 billion, cutting the trade surplus to $25.1 billion from $31.7 billion in June.

The data follow results on Thursday showing Chinese retail sales, industrial output and inflation eased in July, indicating the export-driven economy was feeling the effects of Europe’s debt crisis lowering demand in the key market.

China New loans-  China's new loans in July came in at 540 billion yuan, a weaker reading than the 920 billion yuan from June. The latest data missed analysts' estimates of 701 billion yuan. This resulted in an upward movement in gold.

The U.S federal budget report signalled the progress of the U.S economy and, in turn, affected the USD and commodities prices. The Canadian employment report affected the Canadian dollar that tends to be linked with bullion rates.  The Chinese reports also affected commodities prices as they have shown a sharp change. These reports have shown a decline in trade activity and new loans which in turn suggested that China’s economy is slowing down and this slow groth has adversely affected bullion rates. 

Finally, the ongoing decline of the Euro during the week could continue to curb the rally of bullion rates, while the rise in Aussie dollar and other “risk currencies” is contributing to the recovery of precious metals prices.

With a lack of major, market-moving fundamental news this week, precious metals market watchers are focusing more on the key outside markets. The U.S. dollar index was higher in Thursday, which did limit the upside in the precious metals. Meantime, crude oil prices were slightly higher on Thursday, which did somewhat limit selling pressure in gold and silver. Oil bulls have upside near-term technical momentum after prices Wednesday hit a 2.5-month high. The precious metals markets will continue to look closely at how these two key “outside markets” trade on a daily basis.

In the Indian markets, there was a news leak of increase in duty on gold. However these were rumors and nothing concrete has been announced yet.

Onset of the festive season has seen rise in demand but it is comparatively low. High gold prices and economic turmoil are creating this slug.

Mean while, Gold and silver are still zigzagging with an unclear trend as they haven’t shifted from their respective price range.