Gold recovers to $1,622 an ounce on bargain-buying support

In another round of freefall, following last week's 11 per cent decline, international gold prices fell another $101 (Dh371) per ounce, or about 6.1 per cent, in early trade this morning. This was the yellow metal’s steepest one-day percentage drop in five years, and brought gold prices down by more than $383, or 20 per cent, from its all-time high of $1,920.30 made on September 6, 2011.

Spot gold was hovering at $1,536.82 per ounce at 10.55am UAE time, the first time the yellow metal traded below the $1,550/oz-mark in nine weeks.

Within less than a couple of hours, however, bargain-buying support pushed prices back above $1,600 per ounce and at 1.00pm UAE time, spot gold price was $1,622 per ounce, down just $15.70, or less than 1 per cent (0.96 per cent), over its previous close.

On Friday last week, spot prices declined by almost 6 per cent, or $102 (Dh375) per ounce. Spot gold price settled at $1,637.70 per ounce this Friday compared with a close of $1,812.10/oz last Friday (September 16), resulting in a weekly decline of 11 per cent for the bullion.

Interestingly, this latest rout makes this September gold's worst monthly performance in three years - in the same month that it posted its lifetime high.

A stronger US dollar is primarily the reason behind gold's recent weakness, as is the fact that, on Friday, the New York-based CME Group raised margin requirements for the third time in two months.

In an e-mail sent to traders after the close of trading on Friday, CME Group Inc. said it would raise the collateral requirements for trading in gold, copper and silver futures after a volatile week. Gold margins will be raised by 21 per cent, silver margins by 16 per cent, and copper margins by 18 per cent, effective at the close of trading today (Monday), the e-mail statement said. CME raised gold margins twice in August. Including the increases that take effect today, the margin increases since August 11 total 55 per cent.

“Gold came off as margin calls for other investments needed payments and gold was sold for this reason. Friday’s sell-off was much more a deployment of the all-out exit strategy and the technical environment has turned bearish for the precious metals,” Gerhard Schubert, Head of Precious Metals, Emirates NBD, said in comments sent to Emirates24|7.

Even as the metal recovered modestly to $1,656.10 per ounce in after-market trade, the decline today seems to have taken the 'safe haven' status away from the metal, albeit temporarily. 24ct gold is being retailed at Dh190 per gram in the UAE – the first time the metal is being retailed at that low a level in more than two months.

UAE jewellers reported brisk sales over the Friday/Saturday weekend in the country as gold prices looked attractive again and individuals rushed to cash-in on the lower prices, which some experts reckon are only temporary.

“Don’t despair. The price of gold will rally again as soon as the first wave of this liquidation has finished,” said Schubert, adding “I do firmly believe that gold will be able to recoup the losses in the wake of this outlook for the world.” It must be recalled that gold and other precious metals and commodities including oil began a freefall after the US Federal Reserve announced Operation Twist – a $400b plan to convert US’ short-term debt to longer-term debt.

“The Fed basically declared that the US economy is in much worse shape than anticipated and that is why they are keeping interest rates low for the foreseeable future. The World Bank, the IMF and lots of politicians have voiced their opinion last week,” said Schubert.

“Gold did lose a lot of ground but has actually performed better than all the other precious metals. The ratio to platinum has increased to about $45 in gold’s favour,” said Schubert. “The buyers will return and increased physical buying was already evident towards the close of last week [which saw the gold price recoup $18.40 in after-market trade],” he said.

“We continue to expect stronger than usual physical off-take during October. The run-up to Diwali (26th October), combined with lower prices, will only help stir up additional buying in the near term. We have to be sensible and wait for the waves of selling to subside, but we still expect these liquidations to be a rather short lived distraction, before the rally resumes,” he added.

The brief respite in ever-higher gold prices saw UAE customers rush to buy the metal, with bars and coins being the preferred investment options along with usual jewellery sales. “There has been a definite spike in footfalls as the rate dropped over the weekend,” said a sales executive of a large Dubai-based jewellery chain who did not wish to be named as he is not authorized to speak to the media.

“There has been a growing interest in gold bars and coins of late, and we sold out all our bars and coins sto9cked in the store over the weekend,” said the executive who mans the Mall of the Emirates outlet for the jewellery chain. 18ct gold declined to Dh145.50 per gm while 22ct gold is being retailed at Dh178.50 per gm this morning, according to rates supplied by the Dubai Gold & Jewellery Group.

Silver prices too have tumbled – and much more than gold – in the latest rout that has seen almost everything priced in US dollar (including oil) take a plunge as the greenback has gone from strength to strength over the past few weeks.

Silver prices declined by a whopping 36 per cent below their previous week’s close of $40.78 per ounce and closed the week ended Friday, September 23, 2011, at $30.05 per ounce – down almost 40 per cent from their all-time peak of $49.79 per ounce made on April 25 this year. Spot silver fell another $4, or 11 per cent, this morning and traded at a seven-month low of $26.05 per ounce at 11am UAE time today. This was silver's steepest daily plunge in nearly three years, analysts maintain.

However, in line with the recovery in gold prices, silver too recouped its day's losses and at 1pm UAE time, it was being traded at $29.47 per ounce, just $0.59, or less than 2 per cent, below its previous close.

“What y’all must not do is lose your head while everybody else is panicking,” advised Franklin Sandlers, a gold buff, in his much-followed online blog on gold and silver prices. “Don’t become confused, mistaking short term moves for long term changes. Nothing has changed. System is unaltered… [A]fter a correction, silver and gold will come roaring back,” he wrote.

“Be calm, hold your silver and gold positions – alertly watch for the opportunity to swap gold for silver and to buy more gold and silver at panic prices. Lift your eyes up to the horizon, look at the long term, not at the bumpy road right in front of your hood, otherwise you’ll run off the road into an oak tree,” he quipped. 

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