Dubai: The precious metal sustained its rally on Monday, hitting nearly $1,300 an ounce, as the weakness of the US dollar continued. Some analysts, however, are speculating that gold’s ascent is only short-lived.
By 2.40pm, the precious metal in Dubai cost as much as 5 per cent more than a week earlier, with 24-carat gold retailing at Dh156.50 per gram, up by Dh7.25 from Sunday. The price for 22K went up to Dh147, while 21K and 18K traded at Dh140.25 and Dh120.25 per gram, respectively. In Asian trade, spot gold stood at $1,299.31 as of 1.35pm.
The yellow metal climbed to a 15-month high over the weekend as the greenback weakened and stock markets teetered. The bullion also gained support from the Bank of Japan’s decision to keep monetary policy on hold.
Carsten Menke, commodities research analyst at Julius Baer, said gold’s rally has been due to the declining strength of the dollar and growing bullish sentiment in the futures market.
However, he said, “the air is thinner around $1,300 per ounce”, suggesting that there aren’t really strong grounds for negative interest rates to increase gold demand.
“We do not believe that negative interest rates will necessarily lead to rising gold demand. This is primarily because gold is much more risky than high-grade bonds and not as good as a portfolio diversifier,” Menke said on Monday.
Still, investors should continue to consider gold as insurance to their portfolios, given the current uncertainties in the economy.
“The declining dollar has been a key driver for gold as of late, leading to an outperformance of gold in dollars versus major European currencies of more than 4 per cent. This again underpins that non-dollar investors should consider hedging the currency risk in times of a declining dollar,” Menke said.
“The second key driver for prices over the past couple of weeks has been increasingly bullish sentiment in the futures market. That said, sentiment is mean-reverting and today’s bullishness is signaling caution rather than hinting towards further rising prices.”
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