Stock Gold souq Deira
Shoppers and tourists at Dubai Gold souq in Deira. Image Credit: Ahmed Ramzan/Gulf News

Gold prices hovered near a three-month low on Friday and were set for their fourth straight weekly fall, as the strongest US dollar in two decades dampened demand for greenback-priced bullion.

In the UAE, the cost of 24-karat gold was at Dh221.25 per gram on Friday, down from 223 on Thursday. Meanwhile, the price of 22-karat gold fell to Dh207.75 per gram, 21-karat to Dh198.25 and 18-karat to Dh170 in the UAE. Check the latest gold rates here.

Globally, spot price of gold was up 0.2 per cent at $1,825.94 per ounce in choppy trade. Earlier in the session, it hit its lowest since February 7. This was a day after the price of the yellow metal fell about 1 per cent.

"The fall through support by gold at $1,835.00, and the sell-off in other precious metals overnight, leave gold vulnerable to deeper losses and a potential test of support at $1,780.00 an ounce," OANDA senior analyst Jeffrey Halley said.

Costs drop on strong US dollar

The dollar steadied near a fresh 20-year high scaled on Thursday as concerns persisted that the US Federal Reserve's actions to tame inflationary pressures would crimp global economic growth, boosting the currency's safe-haven appeal.

Bullion has lost about 3 per cent so far this week, its most in two months. Last week, the US central bank increased its benchmark overnight interest rate by an aggressive half-a-percentage point. Bullion is sensitive to rising US short-term interest rates and bond yields, which raise the opportunity cost of holding it.

"Nominal yields will also climb, creating double yield trouble for gold investors as the US will remain hawkish until inflation indicators fall," said Stephen Innes, managing partner at SPI Asset Management. The stance that the US takes expectedly sets the tone for gold markets worldwide. 

Gold's recent slide has wiped out most gains made in a rally driven by safe-haven demand in anticipation of and after Russia-Ukraine conflict started in February. The conflict powered gold prices all the way to near-record levels in mid-March.

Gold stock Dubai
Gold's recent slide has wiped out most gains made in a rally driven by safe-haven demand.

Reeling on Thursday's losses

Spot gold fell 0.7 per cent to $1,839.01 per ounce on Thursday. US gold futures, indicative of future prices, were down 0.7 per cent at $1,841.60 then.

"Dollar is rallying as things potentially look negative in the US, which is hurting gold. Also, the market is realising the likelihood of seeing pretty aggressive interest rate increases," said Bart Melek, head of commodity strategies at TD Securities.

Rival safe-haven dollar climbed to fresh 20-year highs -- making gold less appealing for other currency holders -- driven by concerns tighter monetary policies to tame surging inflation will hurt the global economy.

"Gold is holding relatively better when compared to the industrial precious metals," the demand for which could be hurt in a recession environment, Melek added. Declines in gold were, however, capped by a slide in the benchmark government bond yields, which hit the lowest level in two weeks.

Silver drops as well

Spot silver fell 2.1 per cent to $21.11 per ounce - it hit its lowest since July 2020 earlier in the session.

"Silver is falling faster than gold, that's a bearish sign for the whole complex. With the ongoing lockdowns in China, industrial metals are struggling and US institutional investor who's bailing out a gold ETF by extension bails out of silver as well," independent analyst Ross Norman said.

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- with inputs from Reuters