Dubai gold prices fall Dh2.75 as US rate fears weigh on bullion

Dubai: Dubai gold prices fell on Tuesday, giving shoppers a modest price break as international bullion came under pressure from renewed US interest-rate concerns.

24K gold dropped to Dh533.50 per gram from yesterday’s close of Dh536.25, while 22K gold fell to Dh494 from Dh496.50. That means both popular grades are Dh2.75 per gram cheaper than Monday’s closing rates.

The move comes as international gold prices remain subdued, with traders weighing renewed Middle East tensions against the possibility of higher US interest rates.

Reuters reported that spot gold was down 0.4 per cent at $4,428.54 an ounce early Tuesday, after hitting its lowest level since August 19 in the previous session.

Gold gets cheaper

For UAE shoppers, Tuesday’s move means a 10-gram purchase of 24K gold is Dh27.50 cheaper than it would have been at yesterday’s closing rate, before any making charges or other retail costs.

For 22K gold, the saving is also Dh27.50 on 10 grams compared with Monday’s closing price.

The decline follows a sharp pullback in international gold prices after Federal Reserve Chair Kevin Warsh delivered a hawkish speech last week, signalling that the US central bank may need to keep fighting inflation.

IG market analyst Tony Sycamore said gold has been pressured by Warsh’s hawkish Jackson Hole speech, alongside fresh tensions around the Strait of Hormuz that have pushed oil prices higher and raised inflation expectations.

Why the Fed matters

The big question for gold markets now is what the US Federal Reserve does with interest rates.

Traders currently see a 66 per cent chance of a US rate hike in September, while the probability of a December hike is seen at 89%, according to the CME FedWatch Tool cited by Reuters.

Higher interest rates can weigh on gold because the metal does not generate interest income. When yields rise, investors can have a greater incentive to hold interest-bearing assets instead.

For UAE buyers, this means gold prices could remain sensitive to every major US economic data release over the coming days.

Middle East factor

At the same time, renewed tensions between the US and Iran are providing a counterweight.

The two sides exchanged direct attacks after a month-long lull, while the latest escalation has also pushed oil prices higher.

That creates a complicated backdrop for gold. Geopolitical uncertainty can increase demand for gold as a traditional safe-haven asset, but higher oil prices can also fuel inflation — potentially strengthening expectations that the Fed will keep interest rates higher.

Reuters quoted Sycamore as saying that one US rate hike alone should not necessarily be a major game changer for gold, but two or three hikes could be more significant.

India prices

Gold prices in India moved in the opposite direction to Dubai.

24K gold: ₹156,930 per 10 grams, compared with ₹156,760 yesterday — up ₹170.

22K gold: ₹143,850 per 10 grams, compared with ₹143,700 yesterday — up ₹150.

Gold still on a strong run

Despite Tuesday’s decline, gold remains significantly higher over the longer term. Bloomberg's market commentary said bullion was still up around 10 per cent in August, putting it on track for its strongest monthly gain since January.

Nicky Shiels, head of research and metals strategy at MKS PAMP SA, described the competing forces from the US Treasury and Federal Reserve as a "tug of war". She expects the so-called debasement trade — linked to concerns over sovereign debt and currency devaluation — to continue into September, which could provide support for gold.