Stock - Gold
Gold prices have been speeding up their gains in the last week, and forcing asset holders to give serious thought on whether now might be a good time to sell. Image Credit: Bloomberg

Dubai: With prices surging past $1,900 an ounce, UAE’s gold shoppers and gold holders are taking the same approach - wait before taking their next step. The UAE gold rate is currently at Dh213 a gram for 22K, which in the past would be seen as ideal by gold holders to sell and make a quick profit on - if they had bought the original at anywhere around Dh180 a gram or under.

But this time, they are holding on as the widespread sentiment is that gold prices still have some way to go - on the upside. The highest point that gold rates have reached in the UAE was around Dh235 a gram for 22K, which was last March after the launch of the Russia-Ukraine crisis and earlier in August 2020, when concerns over what Covid would do to the global economy was at its peak.

According to gold jewellery industry sources, if at all there is widespread selling by UAE consumers, it could happen closer to Dh220 a gram levels. (Or if there are sudden indicators that gold could end up slipping from the current lofty levels.) “Those planning to sell would be content if the spread between their buying and selling price is Dh20/Dh25 a gram,” said a retailer. “But what they are hoping for is sell if they can get a Dh30 a gram gain.”

Stock Dubai Gold
Will UAE gold rates head back to all-time highs of Dh235 this time too? Since the start of the year, gold has been in a tearing hurry. But consumers should keep watch on what the US Federal Reserve plans to do next. That could once again influence gold's movement.

The way gold prices have been behaving the past week, crossing $1,950 shouldn’t be much of a sweat. Of course, a lot rests on any indication of what the US Federal reserve intends to do with its rate hike plans. And the chances of the global economy getting hit with a recession.

Wait, watch

That gold prices would head up in the early days of 2023 was the near unanimous opinion of analysts and gold traders. What has taken retailers and shoppers here by surprise is the speed at which the prices have risen, more so in the past week.

As recently as December 22, gold was under $1,800 an ounce. So, what options are there for UAE gold consumers?

They are being patient is how Abdul Salam K.P., Vice-Chairman at Malabar Gold & Diamonds, describes the present sentiment. Those planning to sell even now would be better off, he adds. “The current escalation gives an excellent opportunity for profit-taking for those who bought gold in October and November last (when prices were mostly under Dh190),” said Salam.” The gain is almost 10 per cent within two to three months.

But as the expectation is that prices could go up further, they are taking a wait-and-see approach.

- Abdul Salam K.P. of Malabar Gold & Diamonds

Hold on is right thing to do

That’s the view building up traction with market-watchers. “While the recent gains in the price of gold may be tempting for consumers to cash in on, it is likely that 2023 will hold further increases,” said Aziz Moti, General Manager and Head of Analysis at ISA Bullion. “It would be financially beneficial in the long-run to avoid cashing in (now) - and continue to hold on to the asset. This is particularly true for investors who are looking to preserve their wealth over the long term and protect against inflation.

With economic uncertainty and volatility likely to continue, gold is likely to remain a safe haven asset.

- Aziz Moti of ISA Bullion

“However, it is also worth noting the upcoming Federal Reserve meeting (in February), which could result in the adjustment of gold prices. Investors may want to consider rebalancing their portfolios when deciding on whether to sell or hold their current gold investment.”

A lot thus depends on what the short-term holds for consumers and businesses if interest rates keep rising in the coming months. Any uncertainty will see gold owners try and use the asset to meet some of their cashflow/monthly budget requirements.

A straight cashing out at Dh20-Dh25 a gram range over what they bought at would be an incentive.

Helping during Covid times

During July and August of 2020, small businesses owners did just that. “We had a lot of our longstanding clients come and sell when UAE gold rate had been at Dh230-Dh235 range,” said a retailer. “It helped them see through extremely trying times.

“In the recent past, they were back at buying gold when rates had gone down to under Dh190. What this proves is gold’s safe haven status - and there’s always a right time to buy or sell.”

Gold prices are rising as Wall Street grows confident that the Fed is almost done with raising rates. Non-interest bearing gold is loving the slide in bond yields and that could continue as earnings come in softer-than-expected

- Edward Moya, Analyst at Oanda

Many UAE gold holders will have to decide whether now is the best time to sell - or whether they could be even better off waiting for the next big gold price jump.