Dubai: The gifting season has started early for gold buyers — shoppers started to make a fast return to jewellery outlets in the UAE as gold prices took a sudden dip on Wednesday and remains under intense pressure. Gold prices closed at Dh142 a gram ($1,258 an ounce) on Friday after starting the week at Dh149.5 a gram ($1,317-$1,318 an ounce).
For jewellery retailers here, any buying that will happen between now and October 30 (which is when the Hindu festival of “Diwali” — and when gold buying hits a seasonal high — will be marked) should than compensate for the weak demand during the July to September period, and rated as one of the worst quarters in years.
“Last Tuesday/Wednesday’s sudden decline in price accelerated the seasonal buying and released a lot of pent-up demand that was missing from the market for quite a while,” said Abdul Salam K.P., member of the Board of Directors at Dubai Gold & Jewellery Group. “Between now and early November, when the US elections are due, there’s nothing to suggest there won’t be a strong dollar and, by extension, ensure gold prices remain under pressure.
“If the lower levels persist, we could see more buying support from visitors to the UAE during this quarter, again something that was absent during the second and third quarters. At least there could be a clear rise in such demand from Indian visitors between now and the end of the festive season.”
It was on Tuesday evening that gold slipped below $1,300 an ounce and set off the buying activity in the UAE. On Wednesday morning, the Dubai Gold Price was Dh145 a gram.
The over 3 per cent fall on October 4 was first time gold had dipped below $1,300 an ounce since the Brexit announcement in June. It “seems to have been driven by speculation of a scaling back in the ECBs (European Central Bank) asset purchase programme, combined with rising expectations of a US rate hike in December,” said the World Gold Council in an update. “The move was exacerbated by technical levels, tactical positioning in derivatives markets and a national holiday in China.”
According to local retail industry sources, in the coming days, international gold prices could slip closer to $1,200 an ounce. If that happens, it would be quite a gap from the $1,366 (and Dh155.25 a gram in Dubai) recorded early August, and the highest the metal touched in the year-to-date. (Interestingly, it was on January 2 that gold was at its lowest point so far this year, at $1,065 an ounce (Dh121.25 a gram).
With a Hillary Clinton win looking a certainty by the day, the dollar should continue to trend at a higher level. And with the elections a done deal, Janet Yellen and the US Federal Reserve should finally take the call to raise interest rates.
According to the World Gold Council, the top five countries where consumers were searching for gold following the price drop were in the Middle East, with the UAE being number one. In a statement issued on Thursday, Alistair Hewitt, its London-based Head of Market Intelligence said: “The current movements in the gold price are likely to be rooted more in temporary drivers than the core fundamentals. There is no doubt that the strength of the US$, the increasing likelihood of a rise in US interest rates later this year and the current market volatility does impact perceptions of gold at this moment in time.
“The recent price movement in the gold price represents a good buying opportunity for many retail investors who have been sitting on the sidelines, waiting for exactly this type of pullback before entering the market.”
In the UAE at least, those buyers are definitely coming off the sideline and into the jewellery stores. “The buying spike since Wednesday has predominantly been for jewellery and not for bars and coins,” said Cyriac Varghese, General Manager of Sky Jewellery. “The investment-driven buyers might need to see prices drop below $1,200 an ounce to do so.
“There was sharp dip immediately after the Brexit results came out … right now, there’s a build-up of momentum for the dollar and that will keep exerting pressure on gold.”
Lock in your gold buy at a lower price
UAE’s gold retailers are rushing to come up with a scheme or two to convince shoppers to buy right now.
One of the more popular schemed currently being deployed allows shoppers to pay a certain down payment and thus lock in the price at that day’s rate. The shopper must then complete the rest of the transaction before October 30.
Some retailers are going that extra mile. Shoppers making the down payment can avail of an even lower rate if the price of gold that day is below that of their locked-in rate.
“Even if the prices were to go up between now and October 30, these shoppers are protected from the upside,” said Cyriac Varghese at Sky Jewellery.
