Dubai: Starting Friday afternoon, jewellery stores in the UAE and other Gulf markets recorded a marked increase in footfall as shoppers tried to stay one step ahead of further increases in gold prices. The higher footfall has obviously translated into more purchases, with some of the bigger retail chains averaging Dh3,000-Dh4,000 a transaction.
But volumes on a per gram basis did not move up appreciably because of the higher price per gram. On Friday, 22k in Dubai was quoted at Dh150.446 an ounce against the previous day’s Dh143.672. According to local retailers, there is enough bullion available to meet demands, even an increased appetite, among regional shoppers.
Friday’s spike — set off by the shock over the UK referendum results — prompted many jewellery shoppers — especially those from India — to bring forward their purchases ahead of the vacations back home. What is ironic about the current situation is that consumer demand has spiked when gold jumped itself back into the $1,300 (Dh4,771) plus an ounce range, when it had previously seen tepid sales at $1,200-$1,250.
Local gold sales could have put in higher volumes if it were not for the fact that many prospective consumers decided to become foreign currency speculators by buying a weakened pound on Friday and Saturday. There was a rush to the currency houses to snap up pounds where possible as a herd mentality took hold. (Indian expat shoppers would have liked to put in more on gold if it were not for the steep prices they have to shell out on airline tickets, retailers add.)
Safe haven mindset
But those who opted for gold “seem to have made up their minds that gold is definitely not going to slip back into the sub-$1,250 range for some time now,” said Cyriac Varghese, General Manager of Sky Jewellery. “With that uncertainty removed, more shoppers are getting active in purchases at current levels before it gets any higher.
“What’s most positive is the number of enquiries that are being made at local shops and where possible turning into actual purchases. Brexit has revived gold sales in the UAE like nothing else managed to do in the first-half of this year, and it’s all being driven by local shoppers.
“The gold as a safe haven mindset is getting reinforced.”
The $1,313.85 that gold went up on Friday was its best showing since August 2014, according to World Gold Council stats.
The informed feedback from local bullion wholesalers is that these prices should prevail. “The only fundamental that can pull it back is a strengthening dollar,” said an analyst. “But unless the Federal Reserve signals a firm commitment to raise rates in the near future, dollar’s gains could be limited. That’s something gold investors — and jewellery buyers — will be watching.
“Even on Friday, gold spot sales were up when the Asian commodity markets opened and not replicated much when New York opened later in the day. All of which suggests that gold’s gains could be capped to within a range.”
Classic role
A statement from London-based World Gold Council reiterates bullion’s safe haven credentials. “Gold is fulfilling its classic role and performing exactly as the many investors that bought it in the run up to the referendum will have hoped,” it said. We expect to see strong and sustained inflows into the gold market driven by the intense market uncertainty that now faces the global markets.
“Purchases of gold coins by small retail investors, which were already up sharply in the months running up to the vote, should accelerate further.”
Box: The big positives gold could be in for
* According to the World Gold Council, there could be “an increase in central bank purchases”.
* Gold’s movements could also get support from monetary policy actions. “If central banks are forced to implement supportive measures they will likely come in the form of further extraordinary actions, new rate cuts or delays in planned hikes,” WGC states. “Worse-than-expected US labour market data and a downgrading in economic growth forecasts in June had already seen expectations of a US Federal Reserve interest rate hike pushed out to the end of the year.
“Britain’s departure from the European Union will likely push expectations out even further. And some central banks may push interest rates further into negative territory, increasing the investment challenges for buy and hold investors like pension funds. Indeed, today’s news (the results of the Brexit vote) could see an entirely new class of gold investor emerge.”
