Dubai: 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.
While the demand for gold jewellery is strong even as the price of gold hovered at pricier levels, 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. But will it at least turn a tad affordable in January or February?
“The short answer is that gold tends to perform well, on average, in January,” said Juan Carlos Artigas, Global Head of Research at the World Gold Council. “The ‘January effect’ is, statistically, the strongest. Of course, this doesn’t mean that gold prices rise every January.”
Since 1971, gold rose 1.8 per cent in January – three times its long-term monthly average. Over the same period, gold has had positive January returns almost 60 per cent of the time, and nearly 70 per cent of the time since 2000, as per World Gold Council data. What does all this mean for buyers? The cost will likely stay high this month.
The short answer is that gold tends to perform well, on average, in January
Postpone your gold shopping?
“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," opined Georgina Effel, a Dubai-based precious metals retail analyst.
“However, there is scope for some 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 Dh247 per gram on Friday, higher than last night’s closing rate of Dh246. Similarly, 22-karat, 21-karat and 18-karat also inched higher at Dh228.75, Dh221.5, and Dh189.75 per gram, respectively. Check the latest rates here.
“With prices likely to head higher towards Dh250 per ounce in the coming weeks, research of historical market trends show prices correcting itself after gaining consistently. 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 haven?
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, in my personal opinion, gold will always continue enjoying investors' favour this year mainly because of the uncertainty around global economic growth and recession-related fears,” added Effel.
“Although 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.”
rom a buyer’s perspective, the latest 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
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 latest 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, which is seen to be the trend in the months ahead, 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 haven 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 10-15 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.
Bottom line?
With an improving risk appetite among 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 for the start of a new year?
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 either February or March? Given that prices are expected to slip before it rises again after the first quarter, it would be cost effective to postpone to then. For investors looking to sell gold at a higher price, it would be prudent to wait till 2024 ends.
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