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19 March 2024

Year after biggest drop, will gold ever recover?

Dubai is the largest re-exporter of gold in the world. (AFP)

Published
By Vicky Kapur

At 11am UAE time, spot gold is trading at $1,298 per troy ounce, and even avid gold enthusiasts acknowledge that, this year, the yellow metal will at best trade sideways.

Some like investment bank Goldman Sachs are predicting a rout to $1,050 per ounce by the end of this year on the back of a sustained recovery in global economic data and improving fundamentals.

Avid gold buffs will remember last year this time. On April 15, 2013, spot gold price suffered its biggest single-day fall in 30 years, crashing through one resistance level after another as investors turned to panic selling in light of a tight bear-hug by major investment banks. Read: Biggest gold price fall in 30 years.

That decline was in fact over and above the $87/oz decline that the price of the yellow metal witnessed on Friday, April 12, when it closed for the week at $1,477/oz. As feared by gold bulls, the beleaguered precious metal gold fell by a massive $150/oz in trade during the Black Monday. Gold continued to trade even after the markets officially closed, and spot gold crashed to $1,335 per troy ounce by the morning of April 16.

Today, gold may not be completely out of favour, but it has only business traders and speculators to count among its friends. “Gold is experiencing a mini Black Monday on the anniversary of the biggest fall in gold in 30 year,” quips Ole Hansen, Saxo Bank’s Head of Commodity Strategy.

The retail investors – those who were busy frequenting the Dubai Gold Souq looking for gold coins or bullion bars to stash under their beds – are long gone. This time last year, you couldn’t buy a bullion bar in Dubai for love or money. Read: Bullion bars vanish in Dubai as gold price slips.

That situation has changed today, with not a day passing by without one or the other Dubai-based gold jeweller texting you “an offer you can’t resist”. These range from no making charges to zero-loss in price on exchange of old gold jewellery for new designs.

Make no mistake – the gold souq is still busy with tourists and residents looking for gold jewellery, but the ‘mad rush’ that included even housewives wanting to invest in bullion bars is over, at least for now. Dubai has emerged as the leading destination for gold trade. DMCC Executive Chairman Ahmed Bin Sulayem announced earlier this month that $75 billion of gold was traded through Dubai in 2013, further cementing the emirate’s global position as the global bullion hub.

Addressing over 500 industry professionals at the Third Dubai Precious Metals Conference 2014, hosted by DMCC, US-based analyst and portfolio manager for Tocqueville Asset Management, John Hathaway, forecast that Dubai’s gold trade volumes should continue to grow so long as the emerging middle classes in Asia continue to grow and prosper.

“The Dubai story is part of the wider migration of physical gold away from financial centres. Dubai is a distribution point to all parts of Asia and that level of flow is dependent on the prosperity of the emerging middle classes in various Asian economies. So, as long as that continues I can’t see anything stopping that flow,” said Hathaway.

The ‘affordable’ gold price, then, will only help the interest in gold investment. But, at the same time, gold will also continue to shine during times of global political and economic crises, returning as the safe asset of choice for millions of well-heeled investors worldwide as and when the situation demands.

“Gold has declined from a three-week high as the price continue to react to the strong US retail sales [announced on April 14], which points towards a pick-up in the US economy following the winter slowdown. The lack of escalation in East Ukraine has seen some of the safe haven buying being scaled back not least due to those US numbers,” added Saxo’s Hansen.

“Today also marks the one-year anniversary of the biggest two-day drop in 30 years for gold when on April 12 and 15 it crashed through what was strong support at $1,525/oz. In just two days the yellow metal dropped from $1,565/oz to $1,336/oz,” Hansen recalled.

“Having failed to breach resistance at $1,335/oz [on April 15], gold will once again be looking for support, either from escalating geo-political developments or the 200 day moving average, currently at $1,300/oz,” he said.

Will it drop to levels that Goldman Sachs expects it to? A million-dollar question, but this is what Hansen thinks: “A similar drop to 2013 is unlikely. Those who wanted to get out of gold did, and the rest of 2014 will probably be a year of sideways trading.”