Dubai: The precious metal continued to get battered on Wednesday, with retail prices in Dubai dropping by .18 per cent, bringing the precious metal’s aggregate decline to nearly Dh17 per gram in about one month.
As of 11am, 24-karat gold was retailing at Dh141.75, down from Dh142 on Tuesday’s early trade, while spot gold dropped to $1,166.75.
Gold had plunged to its lowest level in ten months on Monday then later rebounded momentarily. Current retail prices are still 10 per cent lower than their peak levels during the wake of the US elections results.
The downtrend is likely to continue, as the US Federal Reserve is expected to rule in favour of benchmark rate adjustments at their meeting next week. Any rate increase is detrimental to the precious metal.
“Gold prices got hammered this past month, sinking to a 10-month low. With the US dollar and bond yields rising, and equity markets continuing their rally, investors are understandably pulling out of gold,” Nevine Pollini, senior equity analyst at Union Bancaire Privee told Gulf News.
There are several factors that further support the interest rate increase argument. The US economy looks strong, judging by the positive macro data released recently, while Donald Trump promised to boost infrastructure budgets and cut taxes, both are seen to trigger inflation.
“The US economy seems quite solid, with a robust labour market, which could even be qualified at near full employment,” Pollini noted.
“Donald Trump’s promised fiscal stimulus will most certainly reflate the US economy, but also likely lead to a pick-up in inflation. This has strengthened convictions that the Fed will adopt a more hawkish tone and increase rates more aggressively than previously expected.”
Another negative for gold, Pollini said, is that investors are continuing to liquidate their gold exchange traded fund (ETF) holdings, with the month of November seeing the biggest outflow since 2013.
“Weak physical demand from India and China is putting further pressure on prices. India’s demonetisation process briefly spurred safe-haven demand, but this was rapidly suppressed by the subsequent liquidity issues,” Pollini said.
“In China, the government’s decision to restrict gold imports in order to prevent capital outflow has also weighed on prices and we are waiting to see how this could hamper the traditional buying period that is due to start soon in China ahead of Lunar New Year.”
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