UAE gold prices: Shoppers need some getting used to with prices sticking to $2,050 levels

UAE jewellery demand dropped in Q1-23; similar buying dips were recorded in just about every global market where gold is a favoured consumer choice, except for China

Gold and jewellery shoppers in the UAE – and everywhere else– need to take a backseat as the precious metal seems bent on setting new records. Their hopes that gold prices would cool down after the latest US Federal Reserve announcement have not come to pass. Whether in the UAE, India or most other gold-consuming markets, jewellery sales disappointed in Q1-23. The exception was China, where shoppers made full use of the lifting of restrictions..

At $2,049 an ounce – the UAE gold rate at AED229.25 a gram – consumers will find it difficult to make regular trips to jewellery stores to add to their holdings. For a new generation of shoppers now wanting to invest in gold, current prices dictate they will need to wait and watch.

Because the current rally in gold could even take it past the all-time high of $2,070 (set in mid-2020) and then make a run to the $2,100 an ounce level, that could mean more waiting for gold shoppers.

In the first three months of 2023, UAE gold buyers have already made their feelings clear about the prices, a period when bullion was averaging $1,890 an ounce. According to the latest World Gold Council data, UAE shoppers bought 9.7 tonnes of gold jewellery in Q1-23, down from 12.5 tonnes from the same time in 2022. (For the full-year 2022, UAE’s overall gold jewellery sales were 46.9 tonnes, making it the biggest Middle East market for the asset, ahead of Saudi Arabia with 37.9 tonnes.)

Similar buying dips were recorded in just about every global market where gold is a favoured consumer choice, except for China, where demand perked up significantly because of the Chinese New Year seasonal buying. India also saw a dip as shoppers fretted about prices.

“At current price levels, gold is an investor story rather than about consumers. Investors – including heavy buying by central banks – are back to using gold to hedge against the risk of developed economies going into recession. There have also been more localized issues in the US relating to mid-tier banks,” said Andrew Naylor, Head of Middle East and Public Policy at the World Gold Council.

Another rate hike from the Fed last Wednesday should have, ideally, pulled gold prices down and stabilised/raised the dollar’s pricing power. This time, there has been no such thing. This is the catalyst gold needed and the reason why it’s around $2,050 rather than the sub-$2,000 levels seen through most of Q1-23.

“There are many factors that are at play here beyond the Fed’s signalling of a rate-hike pause. One cannot ignore the increasing ranks of failed banks in the US and unending geopolitical tensions. There is uncertainty in the markets right now. Only time will tell if gold continues its steady march. What is apparent is that gold remains an important hedging tool in every investor’s arsenal,” Aziz Moti, General Manager and Head of Analysis at ISA Bullion.

Jewellery demand was mixed across the Middle Eastern region in Q1; higher prices dampened demand in some markets but encouraged quasi-investment buying in others. The UAE (-22%) saw weaker y/y demand, with gold price rises in the former magnified by local currency depreciation against the dollar. There was a healthy upside for investment this year, while the picture for fabrication (jewellery and technology) is more muted. Further robust central bank buying is expected, albeit below 2022’s record. Modest growth is likely in both mine production and recycling.

“Gold is going to shine given this macro backdrop and possibly eye a move above the $2,100 if the de-risking mood on Wall Street remains over the next few sessions,” said Edward Moya, Senior Market Analyst at Oanda. “The force is strong for gold bulls gave all the banking turmoil and rising risks that the US will have a tough recession. The real economy is going to get knocked down a lot given what we are seeing with financials, and that will keep demand elevated for safe havens.”

Courtesy: Gulf News