Dubai gold prices continue to soften, time to buy?

Dubai: Gold prices are on a downward trajectory as traders gauged the effect of a rising dollar and higher Treasury yields on the Fed's rate outlook. Spot gold hovered around $4,140 an ounce. The dollar came close to its strongest level of the year on Monday. The euro slid after a bond selloff in France, which put traders on watch for spillovers across the region. A firmer greenback usually weighs on commodities priced in dollars. 

In the UAE, shoppers are delaying their purchases in anticipation of a further slide. On Tuesday, 24-karat gold continued to trade below Dh500 at Dh496.75, whereas 22-charact is trading at Dh460. 18-karat has slipped to Dh378 whereas 14-karat gold now costs Dh294.75 per gram.

Despite signs of persistent inflation, Fed officials have downplayed the likelihood of a near-term rate increase. Markets are currently pricing in about a 25% probability that the central bank will raise borrowing costs at its meeting this month.

Minutes from the Fed’s September meeting, when it delivered its first rate hike in three years, are due to be released tomorrow. Higher interest rates generally weigh on gold and other bullion because they make yield-generating assets such as US Treasuries more attractive.

Downtrend in the near-term

However, the short-term investment case for gold remains a challenge. “The key driver of sentiment and flows, continues to look heavy and remains in a short-term downtrend. Rallies are quickly being sold, and sellers remain firmly in control,” said Chris Weston Head of Research at Pepperstone.

Weston continues to see the current scenario as a sellers market adding that “unless we see a break above 4,275, we can become more constructive on the near-term upside”.

20% drop since the Middle-East crisis

Gold declined by more than 6 per cent last month as investors weighed the impact of higher energy prices on inflation, along with expectations of higher US interest rates and a stronger dollar. The precious metal has lost more than 20 per cent since the US-Iran conflict began in late February.

Spot gold was trading lower at $4,120.38 an ounce as of 10:00 a.m. in Dubai. Silver dropped to $60.46 an ounce, while platinum slipped and palladium posted a marginal gain. The Bloomberg Dollar Spot Index, which tracks the US currency against a basket of peers, was little changed after recording four consecutive weeks of gains.