Dubai: Gold prices are up by $20 to $1,740 an ounce levels early Thursday (July 28) after the US Federal Reserve went in for a second 0.75 per cent rate hike. This will push the Dubai Gold Rate closer to the Dh200 a gram level for 22K gold, and which could put an end to the sales rally the UAE jewellery markets recorded through the better part of July.
The local gold price is at Dh195.25 a gram and will see a revision after 8am. “Gold above Dh200 a gram remains a psychological hurdle for gold buyers in the UAE, more so as throughout this month, we had seen gold at Dh195-Dh197 or even lower,” said a retailer. “Now, the next demand rise will likely happen when tourists return after summer.”
Typically, gold tends to drop against a US interest rate hike, because the move will have increased dollar’s attraction with global investors. This time, however, dollar’s actually softened.
The expectations of what might happen to gold (prices) are often worse than the actual effect. It’s playing out that way now.
At various points during first 20 days of this month, gold had dropped below $1,700oz and was moving closer to $1,680. Then, late last week, the eurozone central bank hiked its own interest rate and triggered gold's rush back to $1,720. Now, with the Fed hike, it's gained another $18-$20.
Best 2-year sales in UAE
Interestingly, even when gold was averaging $1,750/oz levels, the UAE gold sector recorded 13.2 tonnes in jewellery sales between April and end June, easily the highest levels since Q1-2020 and improvement on the 12.5 tonnes between January to March this year. The figures, released by World Gold Council, show the UAE as being one of the few markets where demand for gold at the consumer level actually improved despite the relatively high prices.
"There are many who are waiting for the price to stablise," said John Paul Alukkas, Executive Director at Joyalukkas. "Also, compared to recent years, sales are stable due to the fact price are still lower."
India reclaims title
In the second quarter, India pipped China to be the world’s biggest market for gold jewellery as shoppers picked up 140 tonnes worth. The marriage season demand helped as did the fact that gold prices slipped 6 per cent during the period. As for China, strict lockdowns under the zero Covid programme severely dented demand for the metal, according to WGC.
“China’s gold demand was all about whether there was a Covid lockdown or not – because each time there has been temporary relaxation, sales have shot up,” said Mulligan. "As for India, the hike in import duty on gold (15 per cent) will find India's consumers learn to live with it after the initial shock. Past instances show that things tend to normalise pretty quickly when it comes to gold buying in India."
Gold and its various demand forms
Gold bar and coin: "Growth in demand came notably from India, the Middle East, and Turkey, which helped to balance weakness in Chinese demand that was partially driven by continued coronavirus lockdowns," WGC reports. This was what created a 12 per cent year-on-year decline in global bar and coin demand to 526 tonne in H1-22.
With jewellery, Q2-22 global demand recorded a 4 per cent year-on-year gain to 453 tonnes, helped by a 'recovery in Indian demand, up 49 per cent compared with Q2-21. "The strong performance in India balances a significant decline of 29 per cent in China, where the market was dampened by coronavirus lockdowns that stalled economic activity and constrained consumer spending," WGC reports.
Central banks were net buyers in Q2-22 as worries about inflation played out. The global official reserves were up by 180 tonnes. Net purchases by central banks were at 270 tonnes in H1-22, 'aligning with the results from our recent central bank survey, in which 25 per cent of respondents said they intended to increase their gold reserves in the next 12 months'.
Looking ahead, we see both threats and opportunities for gold in H2-2022. Safe haven demand will likely continue to support gold investment, but further monetary tightening and continued dollar strength may pose headwinds. As many countries face economic weakness and the cost-of-living crises continues to squeeze spending, consumer-driven demand will likely soften, although there should be pockets of strength
- Louise Street, Senior Analyst at World Gold Council