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10 December 2023

Gold expected to rise further

By VM Sathish



Gold traders in the UAE and other parts of the world are keeping their fingers crossed as the price of the yellow metal keeps climbing after it touched a 20 year high of $865.35 an ounce on Thursday – breaking the previous record of $850 set on January 21, 1980.


The situation is reminiscent of the surge in gold prices in 1980 during the Soviet invasion of Afghanistan, and the industry expects gold to appreciate further if there is no change in the current geopolitical scenario and uncertainty persists in the global financial markets, especially the constantly eroding value of the US dollar. The gold price surge follows a sustained six-year rise in the price built on a combination of strong investment and demand for jewellery.


In view of recent record oil prices, gold is seen as a temporary safe investment to hedge against inflation and currency fluctuations. On Friday gold in Dubai was Dh103.25 per gram for 24 karats and Dh96.25 per gram for 22 karats.


“Investors put their money in gold, a safer bet than any other financial instrument. Real estate and gold are the two best assets in a crisis but whereas in an emergency an owner cannot convert property immediately into cash, he can easily sell gold and get the cash. Many cautious investors are buying gold even at this record price,” said


MM Ramachandran, Chairman of Atlas Jewellery, Dubai. He said the current surge in gold prices is due to geopolitical fears about a Iran-US conflict and the continued erosion in the value of the US dollar. “If the fear among investors persists, gold prices can skyrocket even to $1,500 per ounce,” he said. Fearing further escalation in the price of gold in the near future, customers who intend to buy gold for marriage and other purposes may do so immediately and contribute to pushing up the demand, and therefore the price, further. The bullish sentiment in gold is also boosted by political reasons: the assassination of Benazir Bhutto, Turkish incursions into Iraq and the US Presidential elections are also contributory factors.


James Burton, CEO of the World Gold Council (WGC), said: “Gold’s unique investment attributes as a safe bulwark and dollar hedge have resonated with investors during this time of financial uncertainty.” Moaz Barakat, WGC’s Managing Director for the Gulf, Turkey and Pakistan, said: “If you look at the inflation rate and compare the value of gold to that of both equities and bonds, you will realise gold prices are not soaring that fast. Investors think it is sounder to invest in gold compared to shares, bonds or currencies, because of the uncertainty that interest rates or inflation will increase.”



Golden facts


The World Gold Council said some of the short-term factors affecting the gold prices have occurred on top of longer-term movements in supply and demand fundamentals that have supported the price rise since 2001:


Mine output: The gradual reduction of mine output, with only a small number of major gold finds by the mining industry, is constraining supply. The cost of extracting gold has also increased substantially.


Jewellery demand: Strong economic growth and sustained promotion in the key gold jewellery markets of India, China and the Gulf are leading to strong demand for gold jewellery.


Portfolio diversifier: Both institutional and retail investors are increasingly familiar with gold’s portfolio diversification benefits. The reason for holding diverse investments is to protect the portfolio against fluctuations in the value of any single asset class. Portfolios that contain gold can be more robust and better able to cope with market uncertainties than those that do not.


Easier access to gold investments: Gold exchange traded funds (ETFs) have been instrumental in providing easy access to investing in the metal. ETFs have stimulated demand because it has become as easy to trade gold as it is to trade any stock or share.



Best asset


The WGC says the current gold price has firmer fundamentals than the price in 1980. “In today’s financial markets investors consider gold as a portfolio diversifier, a hedge against inflation and exposure to the dollar. The real value of gold is not that it provides a quick fix, but its capacity to provide a steady means of protecting wealth and to enhance risk-adjusted returns. Gold is among only a handful of financial assets that is not matched by a liability. It can help to provide insurance against extreme movements in the value of traditional asset classes that can happen during crisis. There are longer-term movements in supply and demand fundamentals that have supported the rise in the gold price since 2001,” the WGC said in a statement.