Dubai gold prices shift course, up nearly Dh1

Odds of an interest rate increase in the US have plummeted

Dubai: For the second consecutive day, gold prices in Dubai posted some gains, as the odds of an interest rate increase have plummeted.

The precious metal has so far increased by .75 fils since Sunday, with the 24 karat trading at Dh159.50 per gram as of 3:25pm on Tuesday. Other gold pieces, including 22K, 21K and 18K rose to Dh149.75, Dh143 and Dh122.50 per gram, respectively.

Gold’s renewed strength can be partly attributed to the weakness of the US dollar.  Investors are also banking on the US Federal Reserve to leave interest rates unchanged.

According to the CME Group FedWatch, the chance of a new rate adjustment has dropped from 24 per cent to only 12 per cent.

The Federal Open Market Committee (FOMC) is scheduled to meet on Tuesday and Wednesday to discuss  the US monetary policy.

Gold has always been sensitive to any discussions about possible interest rate increases. This is most likely because the precious metal is “widely used in investment and jewellery, which can also be seen as an investment,” according to CME Group in its research note.

Expectations of a rate increase had earlier mounted, causing the precious metal to post some losses. Gold had peaked about two months ago, but started to show some weakness in recent sessions.

Karim Merchant, CEO and managing director of Pure Gold Jewellers, said that gold will remain under pressure until the FOMC has announced its decision on interest rates. But over the long term, gold will remain a preferred asset for investors.

“While markets have majorly discounted the effect of Fed’s potential decision to increase rate, gold will be under pressure, at least in the short term. With the continued slow and questioned recovery of major global economies, gold will remain a favourite safe haven,” Merchant told Gulf News.

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