Gold demand in 2015 to go up by 11% to 936 tonnes

With the gold rupee price in 2015 likely to be approximately 15% below that of 2014, and with all other factors equal, gold tonnage demand would be forecast to increase by roughly 11% based on regression analysis. This was stated by the Thomson Reuters in its latest report on monsoon and its impact on gold demand in India using combine expertise of Lanworth and GFMS analysts. Lanworth and GFMS are Thomson Reuters group companies for research in agri and precious metals respectively.

Analysts studied monsoon activity, crop production and yields, and local expenditure on gold and examined relationship between each of these variables to come to conclusion that demand will go up 11% in 2015. According to GFMS domestic gold demand in 2014 was 843 tones which means 2015 demand could go up to 936 tonnes. India's imports have been so far 495 tones gold between January to July. Considering average 70-75 tonnes of scrap gold supply in a year, India may have to import around 370-380 tones gold in remaining 5 months of 2015.

The report which made some assumptions while studying data of crop output, crop revenue and rupee gold price of past three decades along with monsoon forecasts etc and their correlations. If other things remains constant, reports estimates 2015 gold demand should go up 11%.

Report has taken crop yield to measure the relationship between the Indian monsoon and gold demand in the country as it factors in acreage and production rather than rainfall.

Monsoon rainfall as a variable can prove faulty when trying to establish a relationship through statistical analysis. Instead, crop yield is observed to be a better measure of the relationship between the Indian monsoon and gold demand in the country as it factors in acreage and production, which both are dependent on expectations for monsoon conditions. Statistically, correlation between crop yield and expenditure on gold is positive. At a more granular level the correlation was 0.84 for yield from food grains vs expenditure on gold (for the period 1985 to 2013). For pulses & oil seeds crops and gold expenditure, the correlation was 0.78. The impact of monsoon on crop yields has further resulted in showing a correlation of 0.97 between expenditure on gold and crop revenue.

"Government's policy intervention by raising the Minimum Support Price in June 2015 is another factor that leads to increased acreage and higher revenue, even during times of lower crop production. Higher revenues translate to higher disposable incomes and savings among farmers, which can result in higher consumption of gold," said the report.

Timing of the monsoon also plays a crucial role, as above average monsoon rainfall at the start of the season can boost farmer sentiment. As a result farmers are likely to spend more on agricultural activity during June, which eventually results in higher collateralising of gold for crop loans during the sowing period.