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UAE: Should buyers, investors wait for gold prices to dip?

Some analysts caution against buying at peak prices

Published: Mon 28 Oct 2024, 10:06 PM

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Image used for illustrative purpose. KT File Photo: Shihab

Image used for illustrative purpose. KT File Photo: Shihab

Should investors and jewellery consumers buy gold now or wait for a probable price drop with the yellow metal making a relentless rally over the past weeks to hit all-time highs?

Investment analysts are divided on whether now is the right time to buy gold. Some experts, like John Reade, chief market strategist at the World Gold Council, argue that the current economic climate favours gold investment. “With inflation rates remaining high and central banks around the world adopting dovish monetary policies, gold is likely to continue its upward trajectory,” Reade argues. He suggests that investors should consider gold as a long-term hedge against economic uncertainty.

Leading bullion traders and precious metal analysts in Dubai believe that chances of the yellow metal scaling new highs and reaching $3000 per ounce in a few months are more.

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A weaker dollar, lower bond yields and increasing geopolitical tensions in the Middle East are behind prices soaring to a new high daily. The rally in the yellow metal prices will likely be sustained and it may exceed $3,000 per ounce before the end of 2024, they contend.

Joy Alukkas, chairman of Alukkas Group, said there is little chance of gold facing a sharp reversal of fortunes. “Waiting for the price to drop to get invested or buying jewellery could be a mistake as further US Fed rate cuts loom against a myriad of geopolitical tensions, with conflict in the Middle East and the upcoming presidential elections in the US at the forefront.

“For jewellery buyers, especially for Asian expatriates, the emotional and aesthetic value of a jewellery piece may outweigh the potential for price fluctuations," Alukkas added.

In the event of a fall in prices, it will not be significantly enough for retail investors to take a risk as the precious metal looks set to break new highs.

Spot gold prices reached $2,749 per ounces with prices in the UAE rising to Dh332.75 per gram for 24-carat and Dh308.24 for 22 carat.

Some analysts caution against buying at peak prices. “While gold has historically been a safe investment, buying at all-time highs can be risky,” says Michael Widmer, a commodities analyst at Bank of America. “Investors should be prepared for potential corrections and consider dollar-cost averaging to mitigate risks.”

“If you are risk-averse, waiting for a potential correction may allow you to buy at a lower price,” one analyst said.

Expatriates often buy gold jewellery for personal use and gifting. “The emotional value attached to jewellery can outweigh the fluctuations in gold prices and gold’s investment prospects,” says U. Nagaraja Rau, strategic director of Bhima Jewellers. “Gold is a timeless investment, and its value is likely to appreciate over time.”

According to analysts, it is essential to analyse historical gold price trends to make an informed decision. Over the past two decades, gold has experienced several significant rallies and corrections. For instance, after reaching a peak in 2012, gold prices fell sharply until 2015, only to rebound again in subsequent years. This pattern suggests that while gold can reach new highs, it is also susceptible to corrections. “Investors should also consider the seasonal trends in gold prices. Historically, gold prices tend to rise during the wedding season in the Middle East, which typically occurs in the second half of the year. This seasonal demand can influence prices, making it a crucial factor for jewellery buyers in Dubai,” an analyst said.

Analysts argue that a decision to buy gold now or wait for a dip ultimately depends on individual circumstances and risk tolerance. If you believe in the long-term value of gold, buying now may be a prudent decision. Historical trends suggest that gold tends to appreciate over time, making it a reliable store of value.

Ahmad Assiri, research strategist at Pepperstone, said gold’s recent journey has seen a sell-off from $2,750/oz to $2,710/oz, followed by a recovery to $2,735/oz — underscoring the metal’s enduring appeal amid turbulent market conditions. “This price action reflects an ongoing tug-of-war between profit-taking by short-term traders and persistent buying interest from investors committed to accumulating gold on dips. While the recent dip might hint at a temporary consolidation phase, it has also proven gold’s ability to attract fresh bids quickly, reinforcing the notion that key buyers are stepping in with confidence. This demonstrates that despite short-term corrections, gold’s value proposition remains intact as a store of value.”

With inflation rates remaining high, purchasing gold now can serve as a hedge against eroding purchasing power, precious metal experts said. If central banks maintain low interest rates or adopt dovish stances, gold may become more attractive to investors. Conversely, if inflation is brought under control and central banks begin to raise interest rates aggressively, gold prices could face downward pressure. Ongoing geopolitical issues, such as conflicts, trade disputes, and political instability, can drive demand for gold as a safe haven. Any escalation in global tensions could lead to increased buying, they said.

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