Dubai: Those who have held off buying gold jewellery lately due to rising prices may soon find themselves back into the market, with analysts predicting there could be some price declines during the second quarter of the year.
Retail gold prices in Dubai dropped by as much as Dh1.75 per gram this week. As of 9am, 24-carat was trading at Dh147.75, down by 0.2 per cent from last Sunday. Spot gold dropped to $1,220.86 an ounce on Monday after the United States reported that it created 215,000 jobs in March.
The precious metal posted a stellar performance in the first quarter of the year, with retail prices in Dubai rising by 15 per cent from the end of last year. However, there are certain factors that point towards prices going down anytime soon.
Carsten Menke, commodity analyst at Julius Baer, said that the bullion gained support from strong safe-haven demand during the first quarter due to rising global growth fears. Sentiment in the gold futures market also reached “overly bullish levels”, while the US dollar weakened on dovish interest rate increase comments from the United States Federal Reserve.
“All of these factors seem to have run their course for now, which suggests that prices should trend sideways or slightly lower during the second quarter,” Carsten Menke, commodity analyst at Julius Baer, told Gulf News.
Menke noted that gold demand from safe-haven seekers has been easing again more recently, with holdings of physically-backed gold products levelling off since the middle of March. “Unless global growth fears return, we would not expect inflows to resume.”
In the futures market, there is a likelihood that investors will continue to secure gains and this could eventually impact gold’s performance.
“Sentiment is at the highest levels since January last year. It tends to be heavily influenced by price momentum, which is why it should cool down somewhat and could lead to more profit-taking in the short-term (as already seen last week).”
“With regards to the US dollar, the market is now pricing in fewer interest rate hikes, reducing downside risks for gold. At the same time, we however do not expect the Federal Reserve to become even more cautious going forward, which speaks against an even weaker US dollar”
The market turmoil in January has led a number of investors to seek refuge in other safe-haven assets like gold. Since December 2012 peak, holdings in exchange-traded products backed by the precious metal had seen a continued outflow..
"Gold has, to the surprise of most market pundits, delivered a stellar performance over the course of [the first quarter], with gold ETFs serving as prime catalysts in the bull run," said Junaid Anwar Khan, head of trading, treasury at the National Bank of Fujairah.
"The [first quarter] rally in gold owes its strength to investors in gold ETFs. Over the last four weeks, the market has entered into a corrective/consolidation phase that it is likely to find support at $1,205 to $1,206 for a resumption towards the annual high over the medium term."
"However, caution should be exercised given the over-arching dependence on particular category of investor against the backdrop of G7 monetary policy statements in the period ahead," added Khan.
