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How much should gold drop by for shoppers in the UAE to make another trip to the jewellery store. Gold prices are down by more than $50 on an ounce basis over the week. Image Credit: Clint Egbert/Gulf News

Dubai: Gold prices seem to be entering a volatile phase, with the Dubai Gold Rate for 22K dropping Dh5.50 to Dh204.75 a gram in just the last 24 hours. This after being at Dh209-Dh210 levels all through the previous 7 days.

Early on Friday (January 28), gold is trading at $1,796 an ounce levels – a further decline could shave off another Dh1 from the Dubai Gold Rate and set up some serious buying over the weekend. The current dip has seen gold slip from near $1,850 level.

These days, shoppers in the UAE are making a return tour of jewellery stores in greater numbers when the price is at or around Dh200-Dh204 a gram, something that they see as part of gold's new normal.

Gold, stock markets and other assets will remain under pressure as the clock ticks to the US interest rate hikes from near zero levels for the first time in two years. The hikes will start to kick in from March onwards, something that the US regulator, the Federal Reserve, reiterated on Wednesday and which could explain why gold prices have slipped since.

But has gold dropped enough for shoppers to make a return? According to Anil Dhanak, Managing Director at Kanz Jewels, it will depend on who is planning to buy. “For tourists, the daily gold price is not as much a factor compared to the price difference between what they are able to get here and in their home country,” he said. “If there is a substantial difference, we will continue to see tourists flocking to Dubai for gold purchases.”

Gold could see a knee-jerk reaction of weakness but eventually settle higher. Investors are growing cautious and demand for safe-havens will only grow as we start to see the Fed become less accommodative. After the dust settles from the Fed meeting, gold should make another attempt at the $1,840 region

- Edward Moya, Senior Analyst at Oanda

Tourist-driven demand

According to the World Gold Council, gold and jewellery sales in the UAE for 2021 was at 33.8 tonnes, making it the biggest consumer market in the Middle East. Saudi Arabia came in second with 33.3 tonnes of jewellery being picked up.

For UAE, the fourth quarter 2021 sales were particularly notable, recording an impressive 10 tones and easily the best three-month performance in two years. The return of tourists – as well as visitors coming for the Expo from October onwards – had much to do with the robust October to December sales. In early November, resident shoppers also pitched in strongly, during the ‘Diwali’ buying phase.

For the most part, the fourth quarter saw gold prices at or around the $1,800 an ounce mark, except for a brief phase in November when they shot up to $1,865 levels. “What we are seeing is a post-Covid normalisation in the gold consumer markets,” said John Mulligan, Director – Market Relations at London-based World Gold Council.

Nearly all the top consumer markets saw this pent-up demand, with Indian jewellery sales touching a six-year high in 2021. Clearly, these numbers were even better than the pre-pandemic levels.

“In the UAE, there was the higher buying support from tourists as well as the latest DSF. Retailers were even surprised with the level of demand from October. What we are seeing with gold – and other luxury sales – is consumers making a return with a greater deal of confidence. US jewellery figures are at a 12 year high.

“It’s the same in China – the world’s biggest gold market – and ahead of the Chinese New Year, we continue to see the ongoing recovery in gold buying. We are not expecting Q1-22 to be a different story.”

Gold typically outperforms even in high inflation periods. Investors are de-risking and in that narrative, gold will continue to be treated as a safe haven

- John Mulligan of World Gold Council

Gold’s sterling comeback

Even outside of the jewellery market, 2021 was about gold’s comeback from a COVID-19 dip. The World Gold Council report, released Friday, sees gold demand at 4,021 tonnes.

Demand for gold reached 1,147t in Q4 2021, its highest quarterly level since Q2 2019 and an increase of almost 50 per cent year-on-year, according to the World Gold Council, with bar and coin demand up 31 per cent to an 8-year high of 1,180 tonnes.

For retailer shoppers everywhere, gold has reinforced its status as the ultimate ‘safe haven’. 2021 has just provided more evidence of that. 

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Anil Dhanak of Kanz Jewels: "Higher interest rates will have some effect on investors as they shift funds away from gold into higher-yielding investments. We could see gold prices fall if that is the case. However, there are several other factors that take effect when it comes to gold. Plus demand will always be there." Image Credit: Supplied