What will trigger gold to fall ‘drastically’

Dubai:  Gold will continue to feel more pain over the next few days and may even fall “drastically” should investors see indications that there will be frequent interest rate increases in the US, an industry source told Gulf News.

Retail gold prices in Dubai moved a bit higher on Thursday morning, but the bullion remained under pressure as the Fed meeting inches closer.

Early trade saw 24-carat rise 50 fils to Dh129.50 from a day earlier. The latest price is still way below the peak level achieved in October, paving the way for buyers to continue scoring some bargains. 

Dubai’s jewellery shops were retailing 22K at Dh122.75, while 21K and 18K traded at Dh117.25 and Dh100.75, respectively.

 In the global market, spot gold was steady at $1,073.58 an ounce by 10.45am, after closing down 0.1 per cent in the previous session, according to a Reuters report, which quoted one analyst as saying that gold is still “locked in a fairly tight range.”

Karim Merchant, managing director and CEO of Pure Gold Jewellers, said that the metal will remain unstable  over the next few days.

“It is expected that gold price will remain volatile just days ahead of the Fed decision on interest rate, and this is exactly what its happening,” Merchant told Gulf News.

“However, institutional investors will dissect the Fed announcement to gauge future trend of interest rate, should investors feel that rate hike will be frequent, gold prices will fall drastically.”

Last week, the bullion hit a near-six-year-low, as the US dollar strengthened after Janet Yellen, head of the Federal Reserve, suggested that a rate increase is likely to happen before the end of the year.

Georgette Boele, coordinator for foreign exchange and precious metals strategy at ABN Amro, said that the precious metal is set for more pain into 2016, with the prices expected to break below $1,000 an ounce in the coming months.

“We expect investors to continue to liquidate positions in the months ahead because of a higher US dollar and higher US rates. It is likely that new lows in prices will be reached before the end of the first quarter of 2016,” Boele said in Wednesday’s note seen by Gulf News.

Aside from a stronger dollar and mounting Fed rate hike expectations, the drop in oil prices are also contributing to gold’s weakness.

“Low oil prices have dragged down precious metal prices because lower oil prices result in lower total cash costs for the mining of metals,” explained Boele.

“The total cash to mine gold appear to have peaked in 2014 and the quarterly company data point into the direction of a decline in total cash costs. Mining companies are in a restructuring process and this could over time result in lower supply. We expect this to start supporting cyclical precious metal prices in 2016 and gold in 2017.”

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