Stock UAE Gold
UAE shoppers should watch out what's happening to gold prices in the coming days. Interest rate hikes by the Fed, ECB and BoE could mean softening up for bullion. Image Credit: Ahmed Ramzan/Gulf News

Dubai: UAE shoppers clearly show a preference for buying gold jewellery rather than bars or coins whenever they are in the mood to add to their collection or see a benefit from a price drop. The gold consumption numbers for 2022 from World Gold Council clearly show those preferences.

In the final three months of 2022, when gold prices were inching their way back to $1,850 and over, demand in the UAE for gold bars and coins were up 2 per cent from a year ago. That compares with a 5 per cent spike in gold jewellery sales during the October-December phase.

In fact, across the Middle East, gold jewellery sales had one of its best years, totalling 190 tonnes from a year-on-year increase of 15 per cent. The gains were driven in large part by UAE and Saudi consumers – as well as tourist buyers doing quite a bit of gold shopping in the UAE.

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During 2022, gold prices averaged $1,800 an ounce.

2022 could have ended even higher for gold and gold jewellery sales had it not been for prices surging past $1,850 an ounce levels in the final weeks of the year. Gold’s been another round of price increases, currently at $1,919 but having gone up to $1,948.

“The price increase in the final quarter intervened in the consumer demand drop,” said Krishan Gopaul, Senior Analyst at London-headquartered WGC. “We saw that in the UAE and in India, where the decline in Q4 was 17 per cent as local prices there rose.”

Crucial 3 days

The coming 72 hours will be decisive for gold’s short-term prospects, with the US Federal Reserve to announce its first rate hike of the year late Wednesday (February 1). Even though the money is on a 0.25 per cent increase, any rate hike dims prospects for gold given its non-interest bearing nature. Then on Thursday come the meetings - and rate increases - from the European Central Bank and the Bank of England.

So, everything put together, an interesting week for gold? “I would argue every week’s been interesting for gold,” said Gopaul. “Yes, the level of inflation (worldwide) and the aggressive monetary response from central banks continue to be the driver for gold’s performance. As with other assets in the market, gold (investors) will be waiting to find out what the next move is from central banks.

“We will just have to wait and see what comes out from these meetings.

“But the higher the interest rate, higher is the opportunity cost is for holding good. Some investors will start looking at other yield-bearing investments.”

That favours shoppers

If investors switch from gold, that’s the moment for UAE’s gold shoppers to come back. What they should be doing is keep track of gold prices, particularly by Friday as the global commodity markets factor in the latest moves by the three prominent central banks.

If prices drop to under $1,900 and slip further to $1,850 levels, it could spur some return among resident shoppers. If not, ‘prices around $1,850 and under are always favourable for tourist shoppers,” said a jewellery retailer. “That’s what we are counting on in February and March.”

If interest rates were to come down to levels we had seen previously, that would be less of a headwind for gold. But it doesn’t look like we will see rates drop to those levels.

- Krishan Gopaul of World Gold Council
Record 2022 for gold
It was a bumper year for gold demand in 2022 – in fact, the best performance in 11 years, with the worldwide total weighing in at 4,741 tonnes. This is 18 per cent up on 2021, with record demand during the Q4-2022 phase, of 1,337 tonnes, according to World Gold Council.

But the October-December phase saw less than overwhelming support from retail buyers. It was central banks and ETFs (exchange traded funds) powering demand for the commodity, and which also explains why bullion has been scoring at $1,900 plus an ounce level through most of this January.