Dubai gold prices rise as soaring oil prices fuel inflation fears

Dubai: Gold prices in Dubai rose on Thursday as the precious metal recovered from a sharp fall in the previous session, with soaring oil and fuel costs adding to inflation concerns while investors weighed whether the US Federal Reserve could raise interest rates again this month.

The Dubai price of 24-karat gold climbed to Dh499.75 per gram, from Dh492.75 at Wednesday's close, while 22K gold rose to Dh462.75 from Dh456.25.

International gold was trading around $4,141.60 an ounce, up 1.34%, as a softer US dollar and renewed demand for safe-haven assets helped bullion recover.

For UAE consumers, Thursday's move means a 10-gram purchase of 24K gold would cost about Dh4,997.50 before any making charges or other retailer costs.

Oil drives inflation

The latest gold move comes as energy prices remain a major concern for financial markets.

US consumer prices accelerated in September, with the increase driven in large part by higher gasoline costs. That has raised fears that persistent energy inflation could make it harder for the Federal Reserve to lower borrowing costs.

Gold traditionally benefits from inflation concerns because investors use it as a store of value. But the relationship becomes more complicated when inflation pushes central banks towards higher interest rates.

"What we're seeing here is just the symptoms of a market uncertain about US interest rate policy, and that is resulting in a bit of volatility," said Kyle Rodda, senior financial market analyst at Capital.com told Reuters.

Rodda said the key level for gold remained just below $4,000 an ounce, adding that stronger economic data could increase expectations of a more urgent rate hike.

Fed bets shift

Markets are now pricing in about a 32 per cent chance of a US rate increase later this month, up from 22 per cent before the latest inflation data, according to the CME FedWatch Tool.

Since gold does not pay interest, higher interest rates can make the metal less attractive compared with interest-bearing assets such as bonds and cash. San Francisco Fed President Mary Daly said further rate increases would probably be needed, although she indicated there was no urgent need to raise rates at the Federal Reserve's October 27-28 meeting.

Fed Vice Chair for Supervision Michelle Bowman similarly said there was time to wait and assess the incoming data before taking further action.

Dollar effect

The US dollar eased on Thursday after reaching an 18-month high overnight.

A weaker dollar tends to support gold because bullion is priced in US dollars, making it cheaper for buyers holding other currencies.

Spot gold rose 0.7 per cent to $4,134.08 an ounce at 0644 GMT, after falling to its lowest level since October 7 on Wednesday.

US gold futures for December delivery rose 1.2 per cent to $4,155.50.

Christopher Wong, a strategist at Oversea-Chinese Banking Corp, told Bloomberg gold had been supported by US Treasury yields reversing an earlier rise.

What this means in Dubai

For UAE shoppers, the immediate takeaway is that gold remains close to the Dh500-per-gram mark for 24K.

At today's quoted rates:

• 24K: Dh499.75 per gram, up Dh7 from Wednesday's close

• 22K: Dh462.75 per gram, up Dh6.50

• International gold: $4,141.60 an ounce, up 1.34 per cent

The final price paid by a jewellery shopper will normally be higher than the quoted gold rate because jewellery can include making charges and other costs.

That means consumers comparing jewellery prices should look beyond the headline per-gram gold price and ask retailers for the total price, including making charges.

More data ahead

Markets are now looking towards US Producer Price Index (PPI) and retail sales data due later on Thursday for further clues about the direction of interest rates.

Stronger-than-expected economic and inflation data could reinforce expectations of higher US rates, potentially putting pressure on gold.

At the same time, continued concerns over energy prices, geopolitical tensions and financial-market volatility could support demand for the metal as a safe-haven asset.

The competing forces mean gold prices could remain volatile in the near term. "We're coming up to a really critical level for gold, which is just below the $4,000 level," Rodda said.