Dubai: Are you looking to buy gold jewellery this month but still find prices out of your reach? As expected, prices have begun to drop this month from sky-high levels seen in January. But you would be happier to know that prices are expected to drop in March, much further than it is now.
The demand for gold jewellery is strong even as the price of gold hovered at pricier levels, but high costs can become well out of reach for a lot of buyers in the UAE, and beyond, especially as prices are seen rising through most of 2024. Let’s look at how affordable gold can get for you in March.
“The gold price could decrease in the coming month following last month’s spike up to new highs. This is particularly because the US Fed meeting recently offered clarity on when they might start cutting interest rates again,” opined Georgina Effel, a Dubai-based precious metals retail analyst.
"When interest rates increase, gold generally increases in value, and when the Fed reduces rates, the price of gold tends to stagnate or decline. Now, after the Fed pushed back strongly against expectations of a US rate cut by March, prices are seen dropping."
The gold price could decrease in the coming month following last month’s spike up to new highs
Postpone your gold shopping?
After declining for two straight years, gold prices rose more than 15 per cent in the international market last year. “While this was advantageous for those investors who wanted to sell their gold at a profit in 2023, it would have been gloom for buyers hoping to buy the metal cheaper,” added Effel.
“Despite the drop in the near-term, I still foresee gold to trade higher through most of 2024 on the back of long-term effects of global interest rate hikes, and it’s safe to rule out any profit-taking or slight pullback in the currently high prices in January.”
However, Effel added there is scope for pull back of gold's recent gains before the first quarter ends in March, even as safe-haven buying raises prices in 2024. Analysts have widely subsequently raised end of 2024 target to well above the current global cost per ounce of $2,040 (Dh7,500).
In the UAE, the 24-karat gold price rate was at Dh246 per gram on Thursday, lower than last night’s closing rate of Dh246.5. Similarly, 22-karat, 21-karat and 18-karat also inched higher at Dh227.75, Dh220.50, and Dh189 per gram, respectively. Check the latest rates here.
“With prices likely to stay below Dh250 per ounce in the coming weeks, research of historical market trends show prices correcting itself even further in March. This would likely translate to a price drop to around Dh220 per gram in the UAE in the next two to three months.”
Gold still seen a safe option?
The yellow metal has always been considered an inflation hedge but higher interest rates has been dimming the bullion’s traditional appeal for investors worldwide, who buy gold in times of high inflation when worried for the safety of their investments locked in other avenues.
This in turn boosts gold prices. But another factor that influences gold prices and is often overlooked is the global interest rate trajectory, which has made gold one of the best investments in 2023 for an investor looking to sell, but then again, not so much for a buyer looking to buy.
“In terms of potential returns, gold will continue enjoying investors' favour this year,” added Effel. “While gold is forecasted to continue to outperform most other investments in 2024, analysts are not expecting to see a dramatic push higher above the record highs as interest rates drop by the end of this year.”
Vijay Valecha, Chief Investment Officer at Dubai-based brokerage Century Financial, agreed that gold price gains stayed constrained amid growing consensus higher interest rates will prolong, a “stance that dampens the appeal of the yellow metal”. He added the “positive sentiment in stock markets is another factor weighing on the safe-haven status of gold."
The upside potential remained constrained amidst growing consensus that the Federal Reserve (Fed) will prolong higher interest rates, a stance that dampens the appeal of the non-yielding yellow metal
Price to limitedly rise in 2024
In 2023, prices rose by nearly $300 (Dh1,100) per ounce or roughly Dh65 per gram, and gold was earlier seen rising as much in 2024, as it did last year. However, market data now points to gold prices stabilising soon, with limited gains, since it has already risen about 15 per cent last year.
“From a buyer’s perspective, the 2024 outlook for this precious metal looks promising, primarily due to the easing of inflationary pressures which may result in the end of monetary tightening. From an investor’s point of view, not so much,” said Zubair Shakeel, a UAE-based investment manager.
“When interest rates are no longer hiked and cuts start, which is the expected trend, returns will start to drop on cash deposits. In this case, investors can tend to turn towards gold which increases the demand and prices for the yellow metal, but this shift will take months to actualise.”
This is a reversal as opposed to recent times when the stock market turned highly volatile during times of global economic uncertainty, which dented the prospects of market returns. In these scenarios, investors turn to gold as a safe asset. But when volatility eases, gold price drops.
Rate hike effect on gold to stay
On the back of weak and uncertain performance in risky assets, Shakeel added that it is strongly advised to remain invested in gold for further 10 to 15 per cent holdings if prices stay range bound and increase it to 20 per cent if costs spike further.
“The market has been pricing in multiple rate cuts worldwide this year, which will soon force gold costs to be lower than it is now. Nevertheless, gold price remains supported by safe-haven demand amid any uptick in concern over global economic uncertainty,” added Shakeel.
Meanwhile, Effel advised short-term investors who are looking to sell and book profits should wait until the end of 2024, preferably till gold prices are hovering above $2,200 (Dh8,000) per ounce or Dh270 to Dh280 per gram in the UAE.
“If people have bought gold for investment purpose, they may book at least partial profit so that they may add to their gold holdings at lower rate. For UAE gold shoppers, all they would want to see is whether the UAE gold rate has a chance to slip towards Dh200 a gram for 22-karat,” added Effel.
The market has been pricing in multiple rate cuts worldwide this year, which will soon force gold costs to be lower than it is now
Bottom line?
With an improving risk appetite of investors driven by the expected conclusion of rate hikes worldwide and the continued resilience of world economies, a crucial question arises: What should be the investment strategy for gold in the coming months?
Globally, rate hikes worldwide have been a major factor that have kept gold prices high last year, with factors such as global inflation and economic uncertainty worldwide having supported gold price gains as well.
However, on an unlikely chance rates continue to be hiked worldwide in the long-term, analysts view it less likely that gold would be able to make much headway to higher levels, and therefore will be more attractive to buyers. But with the current pause in rate hikes, prices will still end 2024 higher.
So should you postpone your gold shopping to March? Given that prices are expected to slip before it rises again after the first quarter, it would be cost effective to postpone. For investors looking to sell gold at a higher price, it would be prudent to wait till 2024 ends.
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