Time to go bold on gold?

Analysts believe that bullion could easily bust the $1,400/oz-mark and may even touch $1,500 per ounce.

With global stocks going ballistic on the back of escalating geopolitical tensions and risk turning out to be a four-lettered word, gold is all set to reclaim its position as the traditional safe haven.

Analysts believe that bullion could easily bust the $1,400/oz-mark and may even touch $1,500 per ounce amidst weakening dollar, global political instability and lower interest rates.

Gold prices eased on Wednesday after hitting 9-month high on Tuesday after global markets were rattled by the North Korean missile test but commodity analysts are bullish about the outlook of the yellow metal.

Davis Hall, global head of FX & Precious Metals, Indosuez Wealth Management, favours a range of $1,235 to 1,380 into next year and maintains "buy on dips" outlook for the yellow metal despite the already 17 per cent-plus returns reaped since Donald Trump assumed office in January this year.

He says gold could reach $1,500, but "we are far from such a reality today, yet ballistic missiles continue to fly above us despite the threat of UN sanctions."

Hussein Sayed, chief market strategist at FXTM, sees gold prices likely to remain well supported, and $1,300 has been a critical resistance level since the beginning of the year. Meanwhile, Bank of America-Merrill Lynch has also projected that the yellow metal will surge to $1,400 by early 2018 as interest rates will stay low.


"We are extremely bullish on gold and all other precious metals. The rising geopolitical tensions, lack of stability in equities and the weakening of the dollar will be the main causes of the bull-run on gold. We expect gold prices to go as high as 1,500 in the near future. We would recommend investors to buy gold at all dips and also look to diversify the precious metals risk by investing in Palladium and Platinum as well," Bal Krishen, CEO of Century Financial, told Khaleej Times.

According to World Gold Council's second-quarter report, global demand for gold fell 10 per cent to 953.4 tonnes while first-half saw demand dropping 14 per cent to 2,003.8 tonnes. While global jewellery demand rose eight per cent to 480.8 tonnes.

Although geopolitical uncertainty on a global scale is now gaining momentum and becoming a concern for all portfolio managers, Davis Hall suggests balanced portfolio with 40 per cent equity exposures at now lofty valuations require between 5 to 15 per cent gold as shock absorber into 2018.

James Hyerczyk, an analyst at FXEmpire, says that gold holding above $1313.30 will continue to give gold a bullish tone but a sustained move under this angle will indicate that momentum is shifting to the downside.
 
Impact on jewellery
Commenting on the effects of stronger gold, Joy Alukkas, chairman and managing director of Joyalukkas Group, says usually customers with an investment mindset are the ones that sit tight when price fluctuations occur and these customers mostly buy gold coins.

"So, we would see more impact on the sale of coins than jewellery."

After a lull in sales in summer, Alukkas sees better sales from September and the impact of higher gold prices doesn't last long for jewellery shoppers.

"During the summer months, most of the customer base is usually away... Come September, most of the holidaying customers will be back and this will again help in getting sales back on track. The effect of gold prices on sales is usually not something that lasts long because jewellery shoppers are used to this and believe in the long-term value of gold and jewellery," he noted.

World Gold Council data for Q2 2017 showed that gold and jewellery sale in the UAE jumped nine per cent in the second-quarter of 2017 as compared to same period last year.

UAE consumer sales rose from 12.6 tonnes in Q2 2016 to 13.6 tonnes during the April-June period of this year, an increase of nine per cent. While jewellery demand rose similar percentage from 11.2 tonnes in Q2 2016 to 12.2 tonnes in Q2 2017, the data showed.

Shamlal Ahamed, managing director - International Operations, Malabar Gold & Diamonds, said spike in gold prices generally increases coins sales at shops and jewellery sales are temporarily subdued. However, upon price readjustment after the event subsides, jewellery sales improves significantly. A slight fall in gold price could see a significant jump in customer footfall.

- waheedabbas@khaleejtimes.com