Bullion traders to feel impact of unseasonal rains too

This, as good rabi crop increases rural demand for gold

Unseasonal rain isn’t only impacting crops in several states but is also bad news for bullion traders, who rely on rabi crop output.

A good rabi crop increases rural demand for gold. While the demand outlook for March is good, it could go down in the quarter beginning April.

Sudheesh Nambiath, senior analyst at GFMS, said: “Rabi yields are going to be key regarding second quarter (April-June) demand. Currently, there is a high level of uncertainty due to rains ahead of the harvest. Jewellers watching this event closely will be cautious on their inventory build-up for April-May.”

In the past couple of weeks, unseasonal rain and wind has affected several crops, including oilseeds, wheat, mango and cumin. These rains have covered almost the entire country. For most crops, the worry is lower yields, which will reduce farmers’ income after harvesting. Forecasts suggest another round of unseasonal rain is also possible.

For bullion traders, the impact is not restricted to lower demand. Several small farmers use gold to get financing for short-term agricultural input costs; they repay by selling crops. Lenders against such pledged gold might sell what is in the form of jewellery if loans are not paid.

“In the eventuality of a poor crop we should see higher auction of jewellery from financial institutions, six or 10 months down,” said Nambiath.

Meanwhile, gold imports are expected to double this month from the previous three months’ average and could be around 90 tonnes as most jewellers are running out of stock. After the government removed the 80:20 rule for gold import, 135 tonnes were imported in the three months from December to February.

Jewellers had delayed imports and consumers had postponed purchases on hopes of a cut in import duty in the Union Budget. As no such announcement came, imports have picked up. This might continue for two or three weeks, till jewellers have enough stocks to meet marriage season demand.

Meanwhile, at the spot market in Zaveri Bazar here, gold closed at Rs 26,480 per 10g.
CAUSE AND EFFECT

• A good rabi crop increases rural demand for gold
• While the demand outlook for March is good, it could go down in the quarter beginning April
• It started India operations in 2001
• In the past couple of weeks, unseasonal rain and wind has affected several crops, including oilseeds, wheat, mango and cumin
• For most crops, the worry is lower yields, which will reduce farmers’ income after harvesting
• Several small farmers use gold to get financing for short-term agricultural input costs; they repay by selling crops
• Lenders against such pledged gold might sell what is in the form of jewellery if loans are not paid