Dubai: Were you hoping to buy gold jewellery soon but find prices way out of your reach? UAE experts say such buyer-averse conditions are unlikely to persist with gold prices expected to drop with more interest rate cuts planned in coming months. So, you don’t need to hold off on buying gold for long!
Gold has risen more than 20 per cent so far this year, peaking at a record of more than $2,600 per ounce (or Dh320 per gram for 24-Karat). While that’s good news for investors looking to sell at a profit, buyers are fretting over prices not being low enough to stock up gold jewellery or coins.
“Gold has been making a string of record highs, profiting investors who sell, but for buyers, anything over $2,500 (or Dh280 a gram for 22-Karat in the UAE) represents quite a price barrier when it comes to gold purchases,” said Georgina Effel, a Dubai-based precious metals retail analyst.
In the UAE, the 24-karat gold price rate was at Dh319.50 per gram on Friday, lower than when it opened at Dh320.25. Similarly, 22-karat, 21-karat and 18-karat also inched lower at Dh295.75, Dh286.25, and Dh245.25 per gram, respectively. Check the latest rates here.
Postpone gold shopping for now
“So while gold has been getting a lot of support as an investment asset from safety buying on the back of higher inflation in multiple economies worldwide amid escalating geopolitical tensions, expectations of more global interest rate cuts before 2024-end will soon start pushing prices lower,” she added.
“When interest rate cuts start, which is what is happening now, some changes to the gold price was always expected. Incidentally, in the hours after Wednesday's cut, gold had dropped to $2,560 plus levels, which translates to Dh285 per gram in the UAE,” she added.
“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, and investors turn to gold as a safe asset, and prices rise as a result. But when volatility eases, gold price drops.”
Cost to stay high before dropping
However, Effel added there is scope for pull back of gold's recent gains before the quarter ends in December, even as safety buying raises prices a little before the year ends. Analysts have subsequently raised end of 2024 target to well above the current global cost per ounce of $2,700, or Dh330 per gram.
“Top banks and brokerages worldwide suggest that gold prices can surge with the current momentum and that liquidation, when it comes, could be sharp but a buying opportunity nonetheless!” said Zubair Shakeel, an Abu Dhabi-based investment manager.
“Gold prices are pushed higher partly on higher crude oil prices, which in turn contributes to inflation worldwide. But with interest rates being cut just as aggressively in the months ahead, not only will inflation be in check, gold prices can be positively impacted for buyers, while not as much for investors.”
On the back of uncertain performance in risky assets, Shakeel reiterated that it is still strongly advised to remain invested in gold for further 10 to 15 per cent of your investment holdings if prices stay range bound and increase it to 20 per cent when costs drop.
Interest rate hike effect on gold to stay
“The market will start to price in larger rate cuts worldwide this year, which will soon force gold costs to be lower than it is now. Nevertheless, for now, 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 that they should wait until the end of 2024, preferably till gold prices are hovering above $2,500 per ounce or Dh280 to Dh290 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?
So how long do gold buyers wait for the next big drop? Based on recent trends, while there's no guarantee that the price will drop immediately as gold's value has been increasing in recent weeks, prices should correct itself before the end of 2024 – just as fast it has risen recently.
In other words, do you postpone your gold shopping for later in the year? Given that prices are to drop before the end of the year, it would be cost effective to put off any buying plans until then. If you are an investor looking to sell your gold before it drops again, it would be prudent to wait a few weeks.
“With prices increasing as they have been, this may also be a rare opportunity for investors to earn some income from an asset historically better known as a portfolio diversification and an inflation protector,” added Shakeel.
