Gold rallied to a six-year high on Tuesday, temporarily disrupting the UAE’s gold and jewellery trade at a critical “buying-spree” time for thousands of expatriates heading home for summer holidays.
The yellow metal has leapt 10 per cent in four weeks as a weaker dollar, prospects of monetary easing by the US Federal Reserve and festering US-Iran tensions continued to fuel bullish sentiment in the market, analysts said.
On Tuesday, gold broke above technical resistance which has thwarted every rally for half a decade to finally rise above $1,400.
Abdul Salam KP, group executive director, Malabar Group, said the relentless gold rally has an immediate effect on the market ahead of the holiday season when the market bustles with expatriate buyers preparing to travel to home countries.
“This is the highest price gold recorded for the past six years. Consumers always take a ‘wait and see’ approach on price variations of such magnitude. They normally watch the movement for the next few days, and if the trend continues or price set, they take purchase decisions,” Salam said, adding, currently customers are on the waiting mood.
“However, the current price increase gives lot of confidence on gold buyers internationally, the GCC in particular. As all other investments are giving a negative growth, gold is the only investment which is showing positive trend,” said Salam.
“Being a home-going season, many jewellers are out with offers in the market. We are sure that the customer confidence in gold will bring back them to the market soon and will show a good growth in sales in the coming weeks,” said Salam.
Spot gold hit its highest since May 2013 at $1,438.63 earlier on Tuesday, before easing slightly to stand $1,429 per ounce by 1146 GMT, up 0.7 per cent on the day.
Pradeep Unni, Head of Strategic Business Development, Richcomm Global Services DMCC, said investors and traders are currently showing a great urgency to accumulate gold on back of escalating tensions between the US and Iran. “Adding momentum to this is the renewed weakness in the dollar after the Fed opened the door to an interest rate cut and other central banks also pivoted to a more dovish stance.”
Currently gold is trading at fresh 6-7 year highs. The US-China trade talks are showing no sense of arriving at a discussion point. “Though charts are at overbought levels, current uncertainties are forcing the investors to buy on any dips. At this pace, $1480 or $1500 per ounce seems to be easily achievable,” said Unni.
Sajith Kumar PK, CEO & MD, IBMC Financial Professionals Group, said gold is set to take a lead in global treasury portfolios in 2019 2nd half. “Considering the current global tensions, central banks have also started shifting their investment portfolio to gold.”
“Given the hints by the US Fed about its plan for rate reduction in 2019 and current geopolitical tensions, investors shifted their focus on gold and gold started shining in the market with investors considering the yellow metal as safe haven,” said Kumar.
Unni said gold is primarily a hedge against geo-political and macro-economic disruptions, and this time it is certainly exhibiting its true character.
“This price hike before the school and summer holidays is ultimately going to result in increased sales in gold retail outlets in the UAE despite a temporary uncertainty We are currently experiencing huge volumes of hedging from bullion traders who do not want to lose if there is a sudden dip in prices from highs,” said Unni.
He said the most important among the challenges that gold might have to contend with is the likelihood of a partial recovery by dollar in the near term. “Hence bullion traders and investors are advised to have proper hedges in place.”
Kumar said systematic investments in gold coins and gold bars would be more beneficial for NRIs considering the strengthening trend of the rupee.
The dollar index dipped to a three-month low on Tuesday, making bullion cheaper for investors holding other currencies.
US President Donald Trump targeted Iranian Supreme Leader Ayatollah Ali Khamenei and other top Iranian officials with sanctions on Monday to increase pressure on Iran after Tehran’s downing of an unmanned American drone.
Indicating investor interest in gold, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.37 per cent on Monday, after posting their biggest percentage gain in nearly 11 years on Friday.
By Issac John