DUBAI: There is only so much shine that gold prices can lose. Just when it was felt that the metal would keep dropping in value and close in on the $1,100-$1,160 an ounce level, as investors piled on to the dollar, gold has made a comeback into the spotlight.
After having dropped at one point to below $1,200 in recent weeks, gold has pushed back to $1,240 an ounce and the “rally looks quite likely to settle prices at around $1,315 by end December,” according to Abdul Salam K.P., Treasurer on the Board of Directors at Dubai Gold & Jewellery Group. “While some recovery from the $1,200 levels was expected, the current upturn and the fact it seems to be sustaining itself has come as a surprise.
“Gold can push higher as the dollar sheds some of its artificial strength.”
It was not to be like this even a fortnight ago. At the time gold prices seemed caught in a downward spiral just as oil was. But while oil continues its slide (and setting alarm bells clanging for GCC economies), those investors who had gone short on bullion were back to taking on the golden shine. There could be further incentives to bind that association closer.
“Once the Federal Reserve restarts its QE4 programme — as global growth slows appreciably due to the Eurozone, China’s hard landing or some Black Swan event — it’s likely to make the markets recognise that the Fed system is broken and that they can’t get out of quantitative easing,” said Rohit Chawdhry, Board Member (Advisory) at The Bahrain Association of Banks. “This will set the stage for the next leg of a secular bull run for gold.
“Gold has seen a multi-year correction of close to 40 per cent from its highs. This is a normal process for any asset class to correct 40 to 50 per cent from its peak in secular bull markets.
“This happened in the 1970s as well when gold corrected sharply before peaking out at $850 (an ounce) during that decade.”
If near term Fed actions can propel a further gold upturn, there could be another potential catalyst in the making, and that too near enough. The Swiss is to hold a referendum (on November 30) whether its central bank should be holding more gold reserves. (A ‘Yes’ vote — though at this stage it looks unlikely — will have the central bank raise the reserves to a substantial 20 per cent from around 10 per cent now.) While that particular debate is more political in nature, it should have its implications for bullion pricing, even if strictly short-term.
Salam sees some degree of “upward mobility” happening for gold values from the Swiss debate.
In the UAE/Gulf, there is little of the speculative buying within the trade in response to try and lock in transactions while values are still on the way up. “There is absolutely no hoarding — all transactions are being monitored by retailers on an hourly basis,” said Salam. “The big retailers make purchase calls at least three times a day depending on the volumes.”
And what are retail buyers doing? Earlier in the month, when gold had dropped below Dh140 a gram, it set off a rush of buying. Demand was dominated by jewellery, but many were committing their purchases on gold coins (8 gram) and bars, in 50 gram and 100 gram.
“Gold’s recent upturn will reinforce local and GCC consumers’ belief that there is inherent value investing in it,” said Salam. “There’s no shaking that belief.”