Wednesday, July 29, 2009

Naked girls and gold demand

Some interesting headlines came across my desk in the last few days and something doesn’t add up. The first headline was entitled Naked girls plough fields for rain:

Farmers in an eastern Indian state have asked their unmarried daughters to plow parched fields naked in a bid to embarrass the weather gods to bring some badly needed monsoon rain, officials said on Thursday.

Witnesses said the naked girls in Bihar state plowed the fields and chanted ancient hymns after sunset to invoke the gods. They said elderly village women helped the girls drag the plows.

The Wall Street Journal also reports that the Indian monsoon season has been very uneven this year [emphasis mine]:
After India's driest June in 83 years, four of 28 provinces have declared drought, and many farmers don't have enough water to grow a full crop. More than half of Uttar Pradesh, the most populous state and a key rice and sugar cane-growing area, is suffering from drought.

A poor crop yield could push up food prices, straining the government's budget and complicating the central bank's efforts to revive the economy without letting inflation get out of hand.

Something doesn’t add up here. India has an economy that is still very agriculturally dependent. How can the Reserve Bank of India forecast deflation to end this year?

In its review of macroeconomic and monetary developments in the first quarter to the end of June, the Reserve Bank of India said on Monday: “There are indications of inflation firming up by the end of the year” because of rising commodity prices, high food prices and the government’s fiscal stimulus measures.

I would remind you that India accounts for a large part of the world’s physical gold demand. Much of that manifests itself during the wedding season after the monsoons and demand is dependent on how the crops come in.

In a year where the monsoons are below average and uneven, what is that going to do to Indian gold demand?

Just wondering…

1 comment:

BruceGray said...

I hadn't connected Indian gold demand and crop size, but it makes sense.