STOCK Dubai gold shopping
In the last two months of 2020, UAE's shoppers returned to their favourite metal. They are getting used to gold being at the sub $1,850 levels. Any further drop to around $1,750 could turn that into a rush. Image Credit: Antonin Kelian Kallouche/Gulf News

Dubai: Which turn will gold prices take next? One favouring shoppers, who have been staying well away from picking up new jewellery pieces because of the sky-high prices?

Or would gold prices be fuelled by another round of heavy buying from global investment funds, which ensured gold shot past $2,000 an ounce and currently in the $1,830 range?

For answers, check the state of the global economy… and of COVID-19 cases.

“A global economic relapse from COVID-19 or any other unforeseen risks could result in weak consumer demand, thus creating a headwind for gold’s performance,” according to World Gold Council.

But even if the economic situation remains uncertain, that could still give gold prices an upshot – from investment funds focussed on stocking up bullion.

“Historically, this behaviour has occurred as investors look for high quality liquid assets, such as gold, in these risk-off environments,” WGC adds.

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Right up there

Gold just didn’t touch record highs in 2020 – it reinforced the message that when all other assets turn sour, it provides the safety option. Investors in gold recorded the second highest returns among all major asset classes last year and coming in just behind those who invested in tech stocks on Nasdaq.

Through all the turmoil of a COVID-19 infected year, gold prices were up 25 per cent (including touching an unprecedented peak of $2,067.15 an ounce on August 6).

Favourable turn

Even at $1,800 plus levels, shoppers are starting to return. According to jewellery retailers in Dubai, November and December recorded the best levels of 2020, with even first-time buyers convinced by gold holding its own even as most other assets saw value drops. (And all this while tourist-led buying is still largely absent.)

Much the same is being witnessed in the world’s top two gold consuming markets – China and India.

“Although global economic growth is likely to remain anaemic relative to its full potential for some time, gold’s more stable price performance since mid-August may foster buying opportunities for consumers,” WGC reports.

“Given the positive link between economic growth and Chinese demand, we believe that gold consumption in the region may continue to improve.

“Similarly, the Indian gold market appears to be on a stronger footing. Initial data from the Dhanteras festival in November suggest that while jewellery demand was still below average, it had substantially recovered from the lows seen in second quarter of last year.”

Getting adjusted

All this while gold prices were “comfortably above” $1,850 for most of third and fourth quarters and finishing the year at $1,887.60.

Gold clearly has convinced quite a few shoppers to get back to buying even at these levels. Some price stability should bring more of them to the shops… provided there are no further economy- or job-related shocks in store during this year.

And it could turn into a gold rush if at all prices drop to around $1,600 or under, which is where gold was at on January 1, 2020. And then came COVID-19 as a full-blown pandemic..