Gold price drops to its lowest in 9 months

24K gold is now Dh14.50 cheaper than its peak in the wake of Donald Trump's victory

Dubai: The precious metal has broken the closely watched $1,200 support level, as it plunged to its lowest in nine months on Wednesday.

Gold’s series of declines following the election of Donald Trump in the US has also resulted in an uptick in physical buying at jewellery stores in Dubai.

As of 8:28pm, 24K was retailing  in Dubai at Dh143.50 per gram, down by a whopping Dh14.50 since its peak in the wake of Trump’s victory (November 7).

Spot gold slumped to $1,181.45 per ounce on the same day, the lowest since February 10, according to Reuters.The bullion had earlier dropped to a five-month low, just a few days after Trump won.

Analysts are betting on this trend to continue on heightened interest rate increase expectations.

Some jewellery shops reported that gold fans in Dubai have been taking advantage of the low prices by stocking up on light-weight ornaments, as well as gold bars and coins.

“The trend is directly related to the fall in gold price and opportunistic buying. [It’s] mostly light-weight Indian jewellery, along with gold bars and coins, [that have been selling out fast],” said Karim Merchant, managing director of Pure Gold Jewellers.

“If gold prices fall further, I expect a huge increase in gold sales. It seems like change to interest rate is imminent and if the rates continue to increase, gold prices will fall further. Gold price and interest rates have had an inversely proportional relationship.”

About a week earlier, the US dollar index rose to a thirteen-year high, causing gold prices to fall significantly. The previous week also witnessed heavy selling in physically backed products.

“Following the recent rapid moves, we expect both the dollar and yields to consolidate, most likely leading to a short-term sideways trend for the metals,” noted Carsten Menke, commodities research analyst at Julius Baer.

Menke said rising interest rates and a stronger dollar can led to a continued decline in precious metal prices. Over the medium to longer term, however, the “biggest upside risk” has something to do with Trump. There is a possibility that gold could stage another rally if Trump fails to follow through what he promised during the campaign.

“Should the current high expectations about his policies not be met, safe-haven demand could return to the markets,” Menke added.

Not all local jewellers in Dubai, however, are seeing a significant increase in gold sales yet.Oofrish Contractor, marketing manager at Liali Jewellery, said the retail demand for gold went back to normal levels after the heavy buying during Diwali.

“There has not been any significant change/spike in the gold buying pattern due to the drop in prices. The demonetisation of currency in India has also created a scenario of wait-and-watch for many Asian tourists to Dubai,” Contractor added.

Demand is likely to pick up again in December, when jewellery fans are expected to make “Christmas or going-home purchases.”

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