Dubai: If you were debating whether or not you should postpone your gold purchases, it would be comparatively profitable to buy now as costs are expected to rise higher than it is currently in the second half of 2023.
Gold costs have been coming under more pressure these past weeks, with the global spot price staying below $2,000 (Dh7,345) per ounce. The price has been largely fluctuating between $1,940-$1,970 (Dh7,125-Dh7,235) for the majority of the past six months.
“The current price levels would offer some relief to shoppers, provided they are in the market to buy. However, many of them would be hoping that more pressure will pile onto the gold price and make them more accessible,” said Georgina Effel, a Dubai-based precious metals retail analyst.
In the UAE, the cost of 24-karat gold was at Dh236 per gram on Wednesday. Meanwhile, the price of 22-karat gold was at Dh218.50 per gram, 21-karat at Dh211.50 and 18-karat at Dh181.25 in the UAE. Check the latest gold rates here.
The current price levels would offer some relief to shoppers, provided they are in the market to buy
Investors looking to sell benefit from higher prices
“However, for an investor looking to sell, gold has been one of the best investments so far in 2023, in terms of potential returns, and the yellow metal may continue enjoying investors' favour this year mainly because of the uncertainty around global economic growth,” 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.”
Several analysts and agencies forecast gold could rise above 10 per cent to 15 per cent or even more in 2023, which translates to prices rising by nearly $200 (Dh734) per ounce or roughly Dh50 per gram, with most analysts predict a moderate gold price increase in 2024.
While gold is considered as a hedge against inflation, with investors buying gold in times of high inflation worldwide for the safety of their investment which boosts gold prices, another factor which influences gold prices is the global interest rate trajectory.
How a pause in global interest rate hikes affect gold
“When interest rates are no longer hiked, which is seen to be the trend in the months ahead, returns will start to drop on deposits. In this case, people tend to turn towards gold which increases the demand and prices for the yellow metal,” said Zubair Shakeel, a UAE-based investment manager.
“This is a reversal as opposed to recent times when the equity market turned highly volatile during times of global economic uncertainty, which dented the prospects of returns. In these scenarios, investors turn to gold as a safe haven asset.”
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 ongoing concern over global economic uncertainty,” added Shakeel.
When interest rates are no longer hiked, which is seen to be the trend in the months ahead, returns will start to drop on deposits
When existing investors should look to sell their gold
Effel advised that short-term inventors should wait for a minor correction in the gold price, buying would be preferable in the range of $1,980 (Dh7,272) to $2,000 (Dh7,345) per ounce.
“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.
Analysts at US-based Commodity Exchange Inc. (COMEX) remain optimistic the price of gold will hold above $1,950 (Dh7,162) per ounce and see it rising further to $2,120 (Dh7,786)-$2,160 (Dh7,933)per ounce this year. “Some profit-booking would make sense when gold prices rise,” the analysts noted.
However, analysts also evaluate that on the unlikely chance that rates continue to be hiked worldwide in the near-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.
Rising gold demand worldwide will impact long-term prices
Analysts have also flagged that the demand for gold, both among people and on a government-level, is reported to have been on a firmer footing, while also pointing out that even though a rally in gold prices was witnessed, the same may be restricted if rates are hiked worldwide in the future.
The UAE’s precious metals market, including gold, jewellery, gold bars and silver, was valued at Dh8.52 billion in 2020 and it is expected to reach a value of Dh13.21 billion by the end of the decade, said Bas Kooijman, CEO and Asset Manager of Luxembourg-based investment firm DHF Capital S.A.
“The strength of gold, as an asset, is a key reason why investors ensure that they diversify at least 5-10 per cent of their portfolio with it. Over time, investing in gold doesn't ‘beat the market’ but not having it prevents you from being able to hedge during high inflation times or market crashes.”
But how will higher demand impact gold prices? The price of gold is affected by global jewellery demand, therefore if global jewellery demand rises, the price of gold will likely rise as well. If demand falls, prices will fall as well.
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