Dubai: Gold has again shot past $2,000 an ounce as investors worldwide keep worrying about a continued crisis for the banking sector – even after Swiss bank USBS confirmed it will buy troubled Credit Suisse for $3.23 billion.
Gold's surge - it had dropped to $1,974 earlier in the day and then suddenly reversed course past $2,000 - comes as markets and investors worldwide remain unsure of where the banking industry is headed. All of the Asian markets are down, with India's Sensex slipping more than 800 points and the Hang Seng by 550.
By 01:00pm today (March 20), gold had dropped back to $1,999. But the situation in the markets remain extremely fluid, and will continue until the Fed comes up with its decision on whether to go for another hike or not on Wednesday.
UAE gold and jewellery retailers are bracing for a rough period, with domestic and tourist buying having dropped since Friday when gold started to push higher. "The weekend has been a dry spell, what we had were people willing to consider exchanging their gold holdings for new jewellery," said one retailer.
In such exchange programs, gold held by consumers - bought over the years - gets sold at today's current prices. If they are exchanging it for jewellery, they only need to pay for the making charges. But these days, many retailers are offering discounts on their making costs they pass on to shoppers.
"Anyone who bought gold before 2020 stands to make significant gains from an exchange scheme - or if they were to sell for cash," said a retailer. "In the last five years, gold's gains have hit more than 50 per cent, or $668 on an ounce basis.
"Gold has its advantage both when they are at shopper-friendly prices and in situations like we have now, where they can use their gold holdings to their advantage."
This is the third time in as many years that gold's gone past $2,000. The all-time high was in 2020, when it hit $2,035.
Currently, the UAE gold rate is at Dh224.5 a gram for 22K.
Markets worldwide continue to remain in turmoil as uncertainty prevails as to where the banking industry is headed. Although Swiss lender UBS sealed a deal to buy peer Credit Suisse in a rescue effort to contain a banking crisis and stabilise financial markets, the deal only provided brief respite for stocks, chiefly banking, as investor focus shifted to some of the underlying risks of the deal.
There’s been a sudden loss of confidence in the financial system amid new worries on write-off-related risks of the deal, particularly when the Swiss regulator decided that Credit Suisse debt with a value of $17 billion will be valued at zero.
This not only infuriated some of the holders of that debt, analysts opine that it dampened wider market sentiment as well. Also, Credit Suisse investors will merely get about 0.76 francs per share - much lower than their closing price on Friday of 1.86 francs.
However, volatility in gold prices is expected to last only as long as more clarity emerges on the rescue of Credit Suisse, the second-biggest wealth manager in Asia, behind only its acquirer, and the updates in turn settle Asian stocks, and the rest of the world’s markets as well.
Given that investor nerves globally were already on edge after the recent collapse of US markets, whose moves are largely mirrored elsewhere, on the SVB bankruptcy, it’s only natural that confidence in the banking system be prone to vulnerabilities and stay low for now. In the long run, however, the rescue deal can only fuel hopes of stability.
- Justin Varghese, Editor - Your Money