UAE’s gold shoppers wait for sub-1,000 an ounce

Dubai (Nov 29)  The UAE’s gold shoppers have only one thought on their minds — whether the current downward momentum in the metal’s prices can push it below $1,000 (Dh3,670) an ounce. And if it does so, how long will it take for that level to be breached.

Gold closed at $1,058 an ounce on Friday (November 26) and even briefly flirting with the $1,052 mark. This also marked the sixth consecutive week of declines for bullion — but UAE’s consumers are yet to hit the jewellery showrooms in sizeable enough numbers to leverage this pricing.

“The shopper traffic is there, but there’s a sentiment that something much more could happen to gold prices,” said Cyriac Varghese, General Manager at Sky Jewellery. “This is unlike what happened in July 24 this year when gold prices dropped to $1,075 (and around Dh124 a gram as per the then Dubai Gold Rate) and shoppers flocked to the stores buying up all available stocks. It was the biggest increase in gold buying activity recorded in the UAE/Gulf for more than two years up to that point and shops were running out on inventory.

“Jewellery retailers had to pay a significant premium to replenish the stocks and meet demand.

“But, now, even with prices at $1,058 (Dh120.5 a gram in Dubai Gold Rate terms), we are not seeing a similar level of activity. There’s buying support, but not near the late July levels.”

Interest rates

They may not have to wait long. The US Federal Reserve is meeting on December 15-16 and which should finally see interest rates being hiked after a 10-year gap. Whatever be the actual hike, it could reinforce the weakness in gold rates and that is when a sub-$1,000 level is most likely to happen.

“Gold — and commodities in general — have been in a secular bear market that began over a year ago,” said an investment analyst. “This coincides with the resurgence of the dollar and end of the QE (quantitative easing) programme.

Gold drops nearly Dh15 per gram

“So long as the trend of rising interest rates, a strong dollar and incipient inflation continue, gold will continue to trend lower.”

If so, how steep will the fall be for gold prices? Industry watchers prefer not to get into the habit of intense speculation, but one of them said that a further drop by about $100 from today’s levels could be the furthest extent of the decline.

According to a jewellery retailer, “Anything below Dh125 a gram will prove advantageous for shoppers in Dubai. They are well aware that these are levels they have not seen for the better part of six years.”

Source: GulfNews