A salesman at a gold shop in Bur Dubai. The gold market is in the balance of long and short buyers, who are both waiting to determine the trend, an analyst said. Image Credit: Pankaj Sharma/Gulf News

Dubai: Gold fans in Dubai can expect more buying opportunities to open up, as prices are likely to drop further amid rising expectations that a rate increase in the United States is more likely to happen before the end of the year.

Just a few days into the presidency of Donald Trump, the precious metal dropped to its lowest level in five months, backing speculations that the new American leader’s promised policies are increasing investor risk appetite.

After the biggest drop, which was equivalent to more than Dh10 per gram in Dubai, the bullion posted another decline, with the 24-karat trading at Dh146.25 per gram as of 1pm on Sunday, down by Dh2.25 from Thursday. This brings gold's total decline since Trump's victory to Dh11.75 per gram.

"Gold prices reeled down to a five-and-a-half month low as, after the initial shock [from Trump's win], the US dollar recovered, bond yields surged and the equity markets soared (an unusual correlation), all on expectations that all his elections proposals will become a reality,” said Nevine Pollini, senior equity analyst at Union Bancaire Privee (UBP).

Pollini said that Trump’s promises of greater fiscal stimuli, such as the implementation of tax cuts and huge infrastructure spending, coupled with trade protectionism, will “certainly reflate the US economy” and will likely lead to a “pick-up in inflation.”

The United States economy already looks “quite solid”, while the employment market is strong. US Federal Reserve vice chairman Stanley Fischer, had acknowledged this prior to the election, citing that American economy “exceeds [their] employment and inflation target.”

“The implications are that the Fed will probably have to increase rates more aggressively than expected, which will definitely be detrimental to gold prices,” said Pollini. “A December rate hike is now fully expected and a few more could be seen in 2017.”

However, Pollini said that gold’s strength should not be entirely overlooked. “It could well come back to the forefront as we get closer to the Italian referendum and elections in Austria, France and Germany, where the risk of anti-globalisation and populist political trends and the uncertainties these could create on the global markets should not be underestimated.”

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