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Should you still invest in gold now?

DGCX plans to launch a Sharia compliant gold contract by early 2018

Gulf News

Dubai: With gold registering its best monthly performance since January, does it still make sense to invest in the yellow metal. Many analysts believe so.

There are many negative factors feeding in the gold’s rally, so be it geopolitical factors triggered by the ongoing crisis in North Korea or rising perception among traders that the US Federal Reserve may be done with raising rates for this year, which has battered the dollar.

Gold ever since has breached the keenly watched $1,300 (Dh4,771) an ounce mark in late September, the yellow metal has registered gains of more than $40 an ounce in a week. The yellow metal moved in the range of $1,200-1,300 an ounce since April.

International spot gold on Thursday was up 0.45 per cent at $1,339.89, near its highest level in a year. In the past six months, the yellow metal has gained 10.38 per cent in the past six months.

“Investment demand for futures and exchange traded products have picked up, especially since gold broke through the double top at $1,300. We maintain our long held end of year forecast for gold at $1,325,” said Ole Hansen, head of commodity strategy at Saxo Bank.

“Now the risk skewed to the upside. Upside targets are the post-US election and post-Brexit highs of $1,337 and $1,375 respectively,” Hansen said.

The support for the yellow metal has come from all over.

“Trump increasingly cuts a more isolated figure with no ability to enact policy at home and disliked and untrusted abroad. His irrationality, which often results in inflammatory and ill-considered tweets, can still move markets and this uncertainty has increasingly been adding support to gold,” said Hansen.

This including the weakness in dollar, which is at its multi-year low. The dollar and gold are considered as alternative assets, and have an inverse relationship.

Below record positions

This support for gold has been visible through the actions of hedge funds who during the past five weeks continued to add length while reducing short positions. In the week to August 22, they increased their net-long gold position to 196,000 lots which is 31 per cent below the record 287,000 lots from July 2016.

The complete capitulation of the gross-short position to just 13,200 lots has seen the long-to-short ratio jump to 16, the highest level seen since December 2012.

“Such relatively extreme positioning in favour of the long side could become an issue should the current breakout fail and gold revert below support, but for now it is mostly an indication of the strong belief in higher prices. Signs of that was seen Friday when a weak US job report failed to lift gold further while the dollar actually strengthen and bonds dropped,” Hansen said.

Sharia compliant

To cater to the local demand, Dubai Gold and Commodity Exchange is planning to launch a Sharia compliant gold contract in the first quarter of 2018.

“The Sharia Gold contract will be the first-of-its kind in the region and will also mark the Exchange’s entry into the Islamic Finance space. We have partnered with Amanie Advisors, a leading global consultancy specialised in Islamic Finance, to structure the Sharia gold product and also with a leading Saudi Arabian group to promote this product in the region,” Gaurang Desai, chief executive officer of DGCX told Gulf News.

The Sharia-compliant Gold product will be sized at 1 kilogram gold bar per contract and physically delivered through the region’s largest gold vault located at the DMCC Freezone.

This year, DGCX witnessed a 17 per cent increase in the number of members trading our range of Gold products, which comprises of Dubai Gold Futures, India Gold Quanto Futures, Shanghai Gold Futures and a Spot Gold contract.

“We see this as an opportune time for innovation in development of gold products such as a Sharia compliant Spot Gold contract and an electronic retail gold product to promote Systemic Investment Plan for small investors,” said Desai.

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