Zawya - Right time to buy? UAE gold buyers better off waiting as prices set to fall further

Jewellery buyers in the UAE have more reasons to celebrate this month, as gold prices are forecast to drop further.

The bullion, which has eased from high levels of $1,557 an ounce in September, will likely continue to weaken over the short term and trade at $1,400 an ounce by the end of the year and through to March 2020, according to the latest analysis from ABN Amro.

Global economic tensions, uncertainty around the U.S-China trade war and the upcoming meeting of the U.S. Federal Reserve later this week are some of the reasons that are impacting the gold prices. 

Eager buyers, therefore, will reap some long-term benefits if they wait until the prices stabilise.

“We expect substantial price weakness in the coming weeks and months,” wrote Georgette Boele, senior FX and precious metals strategist at ABN Amro, in her research note.

According to Kitco’s latest gold survey, 44 per cent of market analysts in Wall Street are also expecting prices to decline this week, although 31 per cent are betting on the yellow metal to trade sideways.

Gold was trading at $1,460 on Monday at 9am (Dubai time, GMT +4), down by nearly $100 an ounce since the peak in September. In Dubai, gold was selling at 176.75 UAE dirhams (24K), 166.25 UAE dirhams (22K), 158.50 UAE dirhams (21K) and 136 UAE dirhams (18K).

Buying gold in Dubai had gotten substantially dearer recently due to the global price hikes, but the latest weakness of the bullion is seen as a welcome relief for the UAE consumers. And with the gifting season of Christmas around the corner and upcoming Dubai Shopping Festival, retailers can expect foot traffic to increase.  

“With gold prices down by more than five per cent since its September high levels, many UAE shoppers are taking this opportunity to hunt for value deals, as the holiday season creeps in,” Vijay Valecha, chief investment officer of Century Financial, told Zawya.

“Gold currently below the psychologically important level of $1,500 gives more boast boost to the consumer spending on gold products,” he added.

Valecha said the market has now shifted, with more buyers now looking to take advantage of the precious metal’s weakness. “Many people who had initially offloaded their gold holdings during high levels [are] coming back to the market [to buy] again.”

Boele, however, warned that the prices have not yet stabilised, as investors holding net-long positions are putting downward pressure on price increases.

“Investors are still massively positioned for higher gold prices. Net-long positioning in the futures markets are extreme, and exchange-traded fund positioning is at [a] high,” Boele explained.

“These positions currently hang over the market and prevent prices from moving substantially higher, because every uptick in prices is used to take profit on existing positions. As a result, the downward pressure on prices increases,” she said.

Source - Zawya