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28 March 2024

Bullion bars vanish in Dubai as gold price slips

Published
By Vicky Kapur

Gold is sick, financially speaking.

After scaling an all-time high of $1,924 per ounce in September 2011, the yellow metal fell down to $1,335 last week – a decline of 30 per cent from its peak.

In fact, the past week was the worst for bullion in over three decades, with gold price shedding more than 10 per cent in a single day, and more than $200/oz in a two-day period.

Various theories abound on what went wrong with gold, including conspiracy theories.

We’ve reported earlier that a 125-tonne sell-order and the potential Cyprus selloff led to panic-selling among major investment banks last Thursday/Friday, further amplified by sell-triggers being activated by the declining gold price, and the vicious cycle began taking its toll.

“It appears that the significant selling pressure last Friday was amplified by a four million ounces (124.4 tons of gold) selling order, to be executed on Comex opening. This was clearly too much for a relatively empty market to handle, and the initial pressure resulted into waves of selling, which in turn attracted further selling all the way down,”Gerhard Schubert, Head of Precious Metals at Dubai-based Emirates NBD, wrote in his weekly report published April 13.

Then came reports that the sell-order wasn’t just 125-tonne – it was more than triple that. According to Ross Norman, gold got crushed by 400 tonnes or $20 billion of selling on Comex.

“The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract in what proved to be only an opening shot. The selling took gold to the technically very important level of $1,540, which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders’ minds it stood as a formidable support level... the line in the sand,” Norman wrote in his commentary published on April 16.

After the massive destruction of gold price over the weekend and the first couple of day last week, we did come around to start expecting resurgence in physical demand at those bargain levels –especially by Indians, the world’s largest consumers.

Spot gold price since recovered to above $1,400/oz yesterday, the last trading day of the week, but just around 9pm UAE time (1pm EDT), spot gold fell below the $1,400 threshold, trading at about $1,393 per ounce.

The World Gold Council (WGC), however, maintains that there is a conspiracy behind the decline. Yesterday, on Friday April 19, 2013, the WGC issued this statement, attributed to Aram Shishmanian, CEO, World Gold Council:

“It has become increasingly clear over the course of the past week that the fall in the gold price was triggered by speculative traders operating in the futures markets. Their short-term view of generating a trading profit is in stark contrast to the views of long term investors in gold, as evidenced by the massive wave of physical gold buying that began over the weekend and accelerated following Monday’s further decline. The surge in gold purchases is spanning markets from India and China to the US, Japan and Europe. Buyers are viewing this as an opportunity to purchase gold at prices not seen in the past couple of years.”

But coinciding with this decimation of gold price is a retail rush that is seeing Indians everywhere, including in the UAE, throng retail stores to lap up gold in whatever form they can – preferably bullion bars.

“We’ve run out of gold bars and the only coins we have are of the 8gm denomination,” a salesperson at one of the leading jewellers’ outlets in Dubai’s Mall of the Emirates told Emirates 24|7yesterday.

“You’re the fifth Indian in just the past hour with that enquiry,” he quipped before trying to interest us with their new line of designer jewellery.

“The World Gold Council is uniquely positioned in the gold market to get immediate feedback on market patterns. We are already seeing shortages for bars and coins in Dubai, while premiums in Mumbai are at $26/oz and $6 in Shanghai, indicating that buyers are willing to pay more than current spot prices for the metal,” the WGC statement added.

“Clearly the desire to own gold, as an investment and for adornment, has made itself felt in the physical market. Gold operates on the basic economic fundamentals of demand and supply. Our view is that demand is strong while supply remains constrained, and that this dynamic ultimately drives the long-term price of the metal,” it said.

At the end of the day, the recent volatility of gold had taken away the safe haven appeal of gold, and while end-user demand will remain strong, especially at these rates, if investment demand dries up, gold might fall to 2008 levels, when demand for paper gold and for investment purposes (as a hedge against global economic slump) started pushing prices northward.