Gold at $1,750 is undervalued by $100, says Dubai expert

A stronger US dollar is keeping gold prices depressed, much below its par value, a senior Dubai-based bullion broker has said, adding that the yellow metal is on track to ‘soon’ cross its all-time high of $1,926/oz.

Spot gold prices were steady at around $1,760 per troy ounce at 10.15am UAE time (6.15am GMT) on Wednesday after three days of consecutive losses.

Analysts, however, believe that gold prices will find support in the imminent buying as a result of the upcoming festive season, with the major Indian festival of Diwali a month from now, falling on November 13.

Gold prices received a shot in the arm in mid-September after US Federal Reserve Chairman Ben Bernanke announced an open-ended quantitative easing programme, pledging to pump in $40 billion worth of money into mortgage-backed securities every month until America’s dismal unemployment numbers improve.

That led gold price to shoot up from early $1,600s to mid-$1,700s in no time, but the yellow metal’s price has since stagnated a bit and has not been able to pierce the $1,800 resistance, trading in a narrow $50-band over the past few weeks.

“We have seen highs of $1,795 this month but have not breached the $1,800-mark,” acknowledges Rouhipour, Senior Bullion Broker, Gold.ae, a Dubai-based online trading platform of deliverable gold and silver.

“It is usual for gold to bounce off round numbers before a surge breaking through them – this is a common occurrence and in this instance, the $1,800-mark is more of a psychological barrier than an intrinsic one,” he explained to Emirates 24/7. “This is what we are currently seeing, and there is a multitude of stability mechanisms as well as other factors suppressing gold price beneath $1,800,” he said.

What, then, would be the fair price of gold, and can we expect a spike in gold prices anytime soon? “In my opinion a spike is in the making and, actually, we are well below the expected price, which should be around $1,850,” Rouhipour reckons.

That would suggest that, at the current prices, gold is undervalued by about $100 an ounce. “The main macro-economic influences currently affecting the gold price are the US fiscal situation and the EU’s floundering recovering. Within the last 30 days, QE3 was announced (on September 13) by the Federal Reserve, which induced an near instant
$40 rise in gold prices due to the new round of stimulus ($40bn/month), on top of operation twist @ $45bn,” says Rouhipour.

“Both of these will increase the rate of inflation of the currency and thus increase the Gold price. To mention the US is still running a monthly deficit of $145bn so whatever the outcome in November, a great deal more printing will need to be done,” Rouhipour told this website.

Is a breach of the all-time high on the cards? “I do believe that we will breach the all-time high barrier soon but whether that is before or after the New Year (and more importantly the US Elections) remains to be seen,” says Rouhipour.

“The most important factor to note is that demand for the shiny metal is actually increasing and supply has decreased massively. The western central banks have already gotten rid of most of what they dare to, and even in mining, with the South African situation, we are actually producing volumes lower than a year ago,” he adds.

“With demand for physical increasing and supply dwindling we are in a position where the price could see a $100 rise in a very short period of time.”

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