Gold prices in UAE likely to increase; should you buy now?

Gold is finally taking off to the upside. After struggling for months, the yellow metal looks set to test new highs, as investors expressed their confidence in its bright outlook in the wake of lingering fears of a recession due to the fragile global economy.

Analysts and market players attributed the present rise in gold prices to the ongoing trade war between China and the US, lowering interest rates, rising demand, and geopolitical tensions across the globe. They expect the upward trend to continue and prices for the precious metal to test all-time highs in the next three years.

Experts said that gold prices are likely to be in range of $3,000 to $5,000 per ounce by 2030 due to uncertainties over the global economy, inflation, and a tight supply due to lower production as mining costs are up. Under an even more bullish scenario, some said that gold prices may hit $5,000 during the next decade.

Joy Alukkas, chairman and managing director at Joyalukkas Group, said that gold prices will continue to be unpredictable in 2020 and 2021.

Referring to the gold price trend in past five years, he said that the yellow metal saw a double-digit decline in rates during 2015, when it dropped to $1,049.60 per ounce. He said that gold prices began their upward trend in the year 2016 and 2017. It remained stable in 2018, but again registered a six-year high of $1,557.11 on September 4, 2019.

"If we summarise, it's been a tough 10 years for the industry, especially the retail trade because consumers' affinity to gold and jewellery changes with every type of fluctuation. However, what has continued to remain firm is the consumer belief in gold being a safe haven in terms of investment, and also their love to adorn various types of jewellery has grown," Alukkas told Khaleej Times.

"Taking into consideration the past 10 years, it would not be realistic to predict the next 10 years. However, gold prices will continue to be unpredictable in 2020 and 2021 amidst uncertainty and global turmoil including the existing trade war between the US and China, Brexit, threats of recession and an economic slowdown," he said. "In addition, we expect that India and China will continue to be the largest consumers of gold. Factors that would drive the demand, especially in India, could be the introduction of attractive gold deposit schemes, easy loans on gold and disruptive digital gold buying start-ups."

Safe haven

Karim Merchant, managing director and chief executive of Pure Gold Jewellers, said that gold has always been considered a safe haven of investment for centuries, though it has witnessed many ups and downs in prices in tandem with political and economic events.

"If we look at the last decade, gold prices reached an all-time high in the third quarter of 2011, and since then it steadily declined and reached its lowest rate in the fourth quarter of 2015, and now it is trading at a higher rate. The main factors that fuelled the recent rise in prices are the uncertainty around the global economy, a strong dollar and the trade war between the US and China," Merchant told Khaleej Times.

To a question about the impact of higher prices on buying, he said that the current high prices has not stopped people from buying gold even though they tend to purchase in smaller quantities hoping for a drop in prices.

"There is always a consumer adjustment period when prices go up and we are currently facing that," he said. "If you look at the history of gold over the last decade, the dramatic fall and rise of gold prices can be attributed to various factors such as political unrest, volatility in oil prices, decisions by US Federal Reserve regarding interest rates and global economic uncertainty."

Lukman Otunuga, senior research analyst at FXTM, said that gold is back in demand thanks to trade uncertainty, concerns over slowing global growth, and lower interest rates across the globe.

"Trade tensions between the world's two largest economies prompted the Federal Reserve and other central banks to ease monetary policy in an effort to counter a global slowdown," he said. "However, with the US and China recently agreeing on a phase one deal, could 2020 see gold fall out of favour with investors?"

Dollar-gold relation

Merchant said that gold prices are inversely proportional to the US dollars, when the dollar is weak the price of gold shoots up, because it becomes more affordable for investors to buy. On the other hand, a stronger dollar makes gold more expensive for buyers thus causing a drop-in gold price.

On a forecast of gold prices, Merchant was also reluctant to comment, but said that he was confident of a bullish outlook.

"Gold prices have increased by approximately 40 per cent in the last decade. Judging by the history of gold, the next decade will be very similar, and we will continue to see volatile prices in the coming years. It is difficult to predict an exact figure as it depends on various economic and political factors. I believe the prospects for gold in the long term is bullish. In the current state, of low interest rates, the demand from central banks and investors is going to push gold prices higher in the future," he said.

Merchant also said that gold will always hold its value as a store house of wealth as it continues to be a favourite asset class for investors as a hedge against inflation and economic uncertainty.

Arjun Dhanak, director of Kanz Jewels, said that gold has seen a high of over $1,900 an ounce, which in retail terms is Dh205 per gramme in 2011.

"There has been a sharp decline in the following years, but we have seen the value of gold appreciating again. This year, we have seen a significant upward trend, which signals a buying trend," he said.

Asked about the outlook for the metal, he said that the yellow metal's future is looking bright, and "we can definitely anticipate revisiting the highs of 2011" in the coming years.

"A lot is dependent on the US-China trade talks and the economic outlook for the near term. For the longer term, we must remember that historically gold is seen as a safe asset so for those who want protect their wealth, gold and the jewellery can prove to be a good investment," Dhanak concluded.