Dubai Gold
The wall of gold entices window shoppers at a store in Dubai. Jewellery retailers have started to fret as gold keeps pushing the $1,600 level. Image Credit: Gulf News Archive

Dubai: Gold is again turning too expensive for most jewellery shoppers in the UAE, breaking past the $1,600 an ounce barrier. The Dubai Gold Price, as of early Wednesday, was at Dh181 a gram for 22K - a level that price-sensitive buyers will shy away from.

As of 10:10, the metal was trading at $1,603.82 an ounce, and in the last 30 days the price has shot up by $41.20 (or 2.6 per cent). Over the last six months, gold has put on nearly $100 an ounce.

Industry sources, however, reckon that it will slip below $1,600 through the course of the day. "For now, at least, It will need some really big global development to see prices sustain above $1,600," said a trader. "But these levels are definitely not shopper-friendly."

What's been happening since the start of the year is proving a real concern for shoppers and the trade. Gold prices have been volatile - first because of the sudden rise in tensions between the US and Iran over the slaying of a top-ranking Iranian general. On January 8, for instance, gold had even shot up to $1,610 an ounce, before settling at around the $1,587 levels. As against that, on January 1, the price was $1,518.

Then came the worries about the global economy and how deeply the China virus will hurt growth this year.

"The trend is for price to push higher from the new base level of $1,585 an ounce," said Cyriac Varghese, General Manager at Sky Jewellery. "Demand has been slow... comparatively."  

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But retailers here are focusing on the brighter side. “Thankfully, much of the buying of gold at this time of the year had already taken place in January during DSF, even though prices were on higher side all through,” said a retailer. “The latest pick up in price - and the moving past $1,600 - will thus not have much of an immediate impact, buying wise.

“But it will hurt prospects for the first quarter if these levels continue. A lot depends on tourist buying over the next few days/weeks. We will need to see whether the virus and flight cancellations will hurt tourist arrivals during this period.”

Too high too soon

Most gold traders were expecting the price to go past $1,600 only by the second quarter - or even the second-half - of this year. That it came about within the first few days of January has shocked retailers and shoppers.

If a regular buyer of gold spends Dh10,000 annually, he will continue to do so irrespective of what the price is

- Anil Dhanak of Kanz jewels

But as always, jewellery firms are thinking of the bigger picture. “If a regular buyer of gold spends Dh10,000 annually, he will continue to do so irrespective of what the price is,” said Anil Dhanak of Kanz Jewels. “Sure, he or she will take home a few grams less - but the gold shopper will still spend that amount.

“All depends then on how soon they are able to adjust to $1,600 or above being the new normal.”

What next for gold?
When in doubt, hoard up on gold.
"Gold is holding above $1600, suggesting investors are continuing to seek gold as a quality asset and hedge against the economic impact of Covid-19 (coronavirus) amid a laundry list of global growth concerns," said Stephen Innes chief market strategist at AxiCorp.
"Yesterday marked the 19th day in a row of gold ETF inflows; indeed, there is a significant appetite for this segment of the market to continue adding gold as a strategic part of the portfolio.
"The Fed's review of their policy strategy, tools, and communications may be the next most important transit point for gold. As the Fed moves to tweak the inflation target, the approach may have a massively bullish imprint on gold markets."