Here Is What The Slide In Gold Is Being Blamed On (Hint: Weather)

When the US economy underperforms expectations, the weather is blamed; and now, on the heels of Japan's pre-emptive blaming of weather for crushed consumer spending patterns; The FT proclaims that El Nino is responsible for the weakness in gold (as monsoon season will reduce physical demand from India)... welcome to mainstream media meteoronomics 101. What is odd about this reasoning is that we are actually more prone to a La Nina than an El Nino pattern this year based on the Southern Oscillator Index.

 

Gold down due to El Nino - Via The FT,

Concerns about the effect of El Niño, which have hit commodities markets since the start of the year, is spreading to gold, as some analysts point to the weather phenomenon’s potential impact on India’s monsoon season.

 

he lack of physical buying by Indian consumers, normally active purchasers of the yellow metal, has been one of the bearish factors for the gold market this year. The precious metal was down 3 per cent on the week at $1,253.90 a troy ounce, and Edel Tully, precious metals strategist at UBS in London, said India was likely to be on the radar in June as the monsoon season started.

 

...

 

A bad monsoon could hit crops and lead to higher food inflation, prompting higher income earners to buy gold.

 

However, a larger impact on the gold market is likely to come from poor crops and rising food costs forcing farmers to “sell part of their gold holdings as well as leaving less money for gold purchases”, UBS added.

As we noted previously...though few have commented on it - the SOI has swung closer to La Nina than the El Noino threshold...

The Southern Oscillation Index, or SOI, gives an indication of the development and intensity of El Niño or La Niña events in the Pacific Ocean. The SOI is calculated using the pressure differences between Tahiti and Darwin.

 

Sustained negative values of the SOI below −8 often indicate El Niño episodes. These negative values are usually accompanied by sustained warming of the central and eastern tropical Pacific Ocean, a decrease in the strength of the Pacific Trade Winds, and a reduction in winter and spring rainfall over much of eastern Australia and the Top End. You can read more about historical El Niño events and their effect on Australia in the Detailed analysis of past El Niño events.

 

Sustained positive values of the SOI above +8 are typical of a La Niña episode. They are associated with stronger Pacific trade winds and warmer sea temperatures to the north of Australia. Waters in the central and eastern tropical Pacific Ocean become cooler during this time. Together these give an increased probability that eastern and northern Australia will be wetter than normal.

Oddly, we are seeing more La Nina than El Nino weather... So buy gold?