Dubai gold dips slightly while markets weigh war risks and interest rates

Dubai: Gold prices in Dubai edged lower on Wednesday morning after a series of sharp moves earlier in the month. (Check latest UAE gold prices here, alongside prices in Saudi Arabia, Oman, Qatar, Bahrain, Kuwait, and India.)

The price of 24-karat gold stood at Dh627.25 per gram, slightly lower than Dh628 on Tuesday. The 22-karat variant slipped to Dh580.75 from Dh581.50 a day earlier.

While the decline is marginal, recent price movements show how quickly bullion has been reacting to developments in global energy markets and the escalating conflict in the Middle East.

Volatility shapes March trading

Price movements through late February and early March reveal a market that has been moving in wide swings within a short period.

Gold traded near Dh636 per gram for 24K at the start of March before surging briefly to around Dh641 on March 2, one of the highest levels seen this year. The rally proved short-lived and prices retreated sharply in the following sessions, dropping to around Dh614 by March 3.

Subsequent days brought a series of rebounds and pullbacks. Bullion climbed again above Dh620 by March 6 and hovered near Dh623 through March 7 and March 8. Another dip followed on March 9 when prices slipped to around Dh615 before recovering again the next day.

Wednesday’s reading near Dh627 suggests the market has stabilised after the early-month volatility, although prices remain well above levels seen in mid-February.

Earlier in the year, 24K gold traded closer to Dh590 to Dh600 per gram before the rally gathered pace. The climb from those levels highlights how quickly bullion has responded to global uncertainty.

Global markets react to energy shock

International gold prices also moved higher this week after reports that the International Energy Agency is considering a major release of strategic oil reserves to counter the energy shock linked to the conflict involving Iran.

Bullion rose above $5,200 an ounce after gaining about 1% in the previous session. The proposed release would exceed the 182 million barrels that were placed on the market in 2022 following Russia’s invasion of Ukraine.

Energy markets remain highly sensitive to developments in the Middle East. Shipping through the Strait of Hormuz has slowed dramatically in recent days. The waterway typically handles about a fifth of the world’s oil and liquefied natural gas flows.

Conflicting statements from American officials on tanker movements in the region have added to market uncertainty, leaving traders watching both oil supply risks and central bank signals.

Interest rate expectations limit gains

Rising energy prices have also revived concerns about inflation, which in turn affects expectations around global interest rates.

Higher borrowing costs tend to weigh on gold because the metal does not generate interest. Investors often shift towards yield-bearing assets when rates remain elevated.

Traders have recently scaled back expectations that the Federal Reserve will deliver aggressive rate cuts this year, especially ahead of fresh inflation data from the United States.

Bullion, which has gained roughly 20% since the start of the year, also plays another role during periods of market stress. Investors sometimes sell gold to raise liquidity when other parts of their portfolios face losses.

That trend appeared in exchange traded funds last week when holdings dropped sharply. Data compiled by Bloomberg shows global gold ETFs recorded a decline of almost 30 tonnes, marking the largest weekly reduction in more than two years.

- With inputs from Bloomberg.