STOCK Gold souq Dubai / gold / sales
Shoppers at gold souq in Deira. Image Credit: Virendra Saklani/Gulf News

Dubai: With the price of gold hovering at record-high levels of late, public demand for such jewellery has been dropping as costs became well out of reach for buyers in the UAE, and beyond. But when are prices next expected to turn affordable?

“I still foresee gold to trade higher in the long term on the back of long-term effects of rate hikes, but in the near term into the end of 2023, I won't rule out any profit-taking or pullback in prices," opined Georgina Effel, a Dubai-based precious metals retail analyst.

“While there is scope for some pull back of gold's recent gains, expect safe-haven buying to raise prices. Analysts have widely subsequently lowered end of 2023 target to $1,900 (Dh6,978) per ounce from $1,942.40 (Dh7,134.48) currently.”

In the UAE, the 24-karat gold price opened lower at Dh234.50 per gram on Monday as compared to last night’s closing rate of Dh235.25. Similarly, 22-karat, 21-karat and 18-karat also opened lower at Dh217.25, Dh210.25, and Dh180.25 per gram, respectively. Check the latest rates here.

I still foresee gold to trade higher in the long term on the back of long-term effects of rate hikes

- Georgina Effel

Gold still 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 so far in 2023 for an investor looking to sell, but 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 2023, analysts are not expecting to see a significant push higher above the record highs until the second half of the year. For now, gold price predictions emerge to consolidation before targeting new all-time highs.”

Stock Dubai Gold
In terms of potential returns, gold will always continue enjoying investors' favour this year.

Prices to rise in 2024

In 2024, multiple research agencies forecast gold not rising as much as it did in 2023, with prices rising by nearly $200 (Dh734) per ounce or roughly Dh50 per gram. However, market data also indicate signs of gold prices falling soon since it has already risen 8 per cent this year.

“From a buyer’s perspective, the 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.

From a buyer’s perspective, the outlook for this precious metal looks promising

- Zubair Shakeel

Rate hike effect on gold

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 between $1,940-$1,970 (Dh7,125-Dh7,235) and increase it to 20 per cent if costs spike further.

“The market has been pricing in multiple rate cuts worldwide later this year, which could be beneficial for gold. Additionally, 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, preferably till gold prices are hovering above $1,950 (Dh7,162) per ounce or Dh240 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.

Gold Souk
Short-term investors who are looking to sell and book profits should wait.

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 for the remainder of the year?

Globally, rate hikes have been a major factor that have kept gold price gains capped this year. On the other hand, inflation and economic uncertainty worldwide supported gold prices during the first half of 2023.

However, analysts also evaluate that on the chance that rates continue to be hiked worldwide in the long-term, it is less likely that gold would be able to make much headway to higher levels, and therefore will be more attractive to buyers. That’s the expected price trend for 2024.

So should you postpone your gold shopping for later in the year or even to the start of 2024? Given that prices are currently at unsustainably high levels, it would be cost effective to do so. But if you are an investor looking to sell your gold before it drops again, it would be prudent to do so soon.