Dubai gold rises Dh1 but buyers still get one of July’s lowest rates
24K rose Dh1 on Tuesday after dropping Dh18.50 from July’s high
The 24-karat variety rose by Dh1 to Dh484.50 per gram at 9.27 am, compared with Dh483.50 on Monday. The 22-karat variety also gained Dh1 to reach Dh448.75, up from Dh447.75 in the previous session.
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The small increase offers limited relief to buyers who have watched local prices fall considerably since the first week of July. The 24-karat rate has dropped Dh18.50 from this month’s peak, while 22-karat gold is Dh17.25 cheaper than its highest July level.
Prices remain near July low
Dubai’s 24-karat gold price began the month at Dh489.75 before climbing above Dh500 on July 3. It reached Dh503 on July 4 and remained at that level the following day, marking the highest rate recorded so far this month.
Prices then began to retreat, falling to Dh499 on July 6 and Dh493.50 on July 7. A brief recovery pushed the rate to Dh497.25 on July 9, but the rebound failed to hold.
The 24-karat variety stood at Dh496.50 over the weekend before dropping Dh13 to Dh483.50 on Monday, its lowest level in July. Tuesday’s Dh1 increase leaves the price only marginally above that low.
A similar movement was seen in 22-karat gold, which climbed from Dh453.50 on July 1 to a monthly high of Dh466 on July 4 and July 5. It subsequently fell to Dh447.75 on Monday before recovering slightly to Dh448.75 on Tuesday morning.
Energy costs pressure bullion
International gold steadied near $4,020 an ounce following a two-day decline, having lost 2.9% on Monday. Escalating hostilities between the US and Iran drove oil and European natural gas prices higher, raising concerns that rising energy and transportation costs could keep inflation elevated.
Higher inflation would increase the possibility of tighter US monetary policy, which tends to weigh on gold because the metal does not pay interest.
Federal Reserve Governor Christopher Waller said policymakers may need to increase rates in the near term if underlying inflation continues to point to broad price pressures. The market-implied probability of a quarter-point increase later this month has risen to around 50%, compared with less than 10% previously.
“In the July 13 session, gold recorded its second consecutive decline. Prices returned to the key psychological area around $4,000 per ounce as tensions in the Middle East unexpectedly escalated again,” said Linh Tran, Market Analyst at XS.com.
Oil prices rose to their highest levels in around a month at the beginning of the week amid concerns that shipping through the Strait of Hormuz could face disruption. The resulting inflation risks have outweighed some of the traditional support that geopolitical uncertainty provides to bullion.
“Rising interest-rate expectations are directly weighing on gold because the precious metal does not provide a fixed yield,” Tran said.
The US dollar has also gained from higher rate expectations and demand for safe assets. The US Dollar Index was holding around 100.9 to 101.0, making gold more expensive for buyers using other currencies and limiting its ability to recover.
$4,000 support faces another test
Gold has extended its losses in July after falling 14% during the second quarter, its weakest quarterly performance since 2013. Expectations that the Federal Reserve could tighten policy have lifted the dollar and Treasury yields, while holdings in gold-backed exchange-traded funds fell to their lowest level since September last week.
“The $4,000 area remains an important psychological threshold. Gold slipped below this level several times in June and during the first half of July but quickly rebounded on each occasion. This indicates that buying interest continues to emerge at lower price levels, although the market’s ability to defend this support is being increasingly tested,” Tran said.
Traders will watch the US Consumer Price Index report for June and Federal Reserve Chairman Kevin Warsh’s first appearance before Congress later on Tuesday for further clues about the interest-rate outlook.
Markets expect core consumer inflation to increase by around 0.2% month-on-month. A higher reading could strengthen expectations of another rate increase and put further pressure on gold, while weaker inflation could ease the dollar and Treasury yields and help bullion recover.
- With inputs from Bloomberg.
