A gold and jewellery factory in Dubai. Most of Dubai exports come from the gold and jewellery sector, which contributes to more than 60 per cent of the total export value. Image Credit: Ahmed Ramzan/Gulf News

Dubai: Gold prices dropped back toward an 11-month low and this will only further demand among buyers in the coming days. 

In the UAE, the cost of 24-karat gold was at Dh207.75 per gram on Thursday. Meanwhile, the price of 22-karat gold fell to Dh195.25 per gram, 21-karat to Dh186.25 and 18-karat to Dh159.50 in the UAE. Check the latest gold rates here.

History of gold price drop
Gold rates in the UAE recorded during the past 10 days. Image Credit: Dubai Gold & Jewellery Group

This is amid expectations as investors again turned to the US dollar as a haven asset, as the value strenghthened, amid expectations for more aggressive monetary tightening in the world's largest economy, the US.

The metal slipped as much as 2 per cent after ending Wednesday 0.6 per cent higher in the wake of a searing inflation report from the US.

Investors shun gold, buyers buy

By Thursday, investors had digested the inflation news and again turned away from gold to the greenback as a hedge, according to David Lennox, a resources analyst at Australia-based stockbroker Fat Prophets.

"We'd really need to see a much lower US dollar for gold to get a sustained positive kick going forward," Lennox said. "Investors are turning more to the greenback than bullion as a haven asset."

Gold prices have been volatile this year as the Russia-Ukraine conflict spurred a rally to well above $2,000 an ounce in March, only for the momentum to fade as the growth and inflation outlook shifted.

In recent weeks, investors have cut holdings in bullion-backed exchange-traded funds. The strong dollar is weighing on bullion price "as are the higher interest rate expectations," noted Commerzbank AG.

Gold, jewellery, gold ornaments
Gold prices have been volatile this year as the Russia-Ukraine conflict spurred a rally to well above $2,000 an ounce in March.

Gold price factors in next rate hike

Gold, which pays no interest, tends to be pressured when interest rates rise as this increases the opportunity cost of holding bullion. "Gold is lower amid fresh attempts to send the dollar higher," Saxo Bank analyst Ole Hansen wrote.

Traders are pricing in a 100-basis-point rate hike by the US at its upcoming monetary policy meeting on July 26-27 to curb inflationary pressures. A hike of at least 75 basis points is seen as almost certain.

Data on Wednesday showed US annual consumer prices jumped 9.1 per cent in June, the sharpest spike in more than four decades.

In the physical markets, the second biggest bullion consumer India's plain gold jewellery exports to the UAE jumped in May and June after the Gulf state allowed duty-free imports from the south Asian country, a leading trade body told Reuters.