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Contributors India: One More Reason to Buy Gold
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There’s no question that the Fed printing billions of dollars every month is good news for gold. But that’s not the only reason the yellow metal should continue to move higher.

It’s important to keep in mind the seasonality aspect of the physical demand for gold. India and China, the world’s top two gold consumers, tend to hold festivities towards the end of the year. As a result, gold demand traditionally rises in the last quarter of the year.

There’s also the currency aspect: In the past year, the Indian rupee collapsed because of the country’s widening deficit. This made gold very expensive for Indians. As a result, they cut down on their gold jewelry purchases. In the second quarter, for example, India’s gold demand dropped to 181.3 tons, down a massive 38% from a year earlier.

But the government has started to implement some policies to reduce the deficit. This has stabilized the currency. The Indian rupee has rallied 7% in the past three months. Gold is once again becoming affordable, just in time for the festivities.

A Stronger Rupee is Good News for Gold

See larger image

Notice in the chart above that gold entered a correction exactly at the same time the Indian rupee started its plunge. Now that the rupee is stabilizing, Indian demand for gold should increase, helping push the price of gold higher.

Regards,


Evaldo Albuquerque
Senior Analyst

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