Cyprus, Drop In Demand Cause

KUWAIT CITY, April 16

The drastic slide in the price of gold has triggered a buying spree in Kuwait, as the price fell close to 9 percent since last week. As of Tuesday, the price per gram of gold was KD 12.750.

Local jewellers are expecting the trend to continue further and see it as a windfall for buyers. The price is expected to plateau off around KD 12.500 to KD 12.000, "after which there will be a rebound." The recent fall is unlike a normal correction, because usually the price drop is in the range of 200 fils to 300 fils in a day; however, this time round the market witnessed a free fall of 750 fils in a single day. "When the fall began a week ago, the price for a gram of gold was KD 14 in the morning and by evening it was KD 13.250." Sellers attributed the fall to reports that Cyprus and Euro zone countries are going to sell off their gold stocks to save their economies. "When there is a distress selling of any commodity, there's bound to be a drop in price. Another reason for the decline in price is the drop in Asian demand."

According to the estimation of World Gold Council, demand for gold decreased world wide. In 2011, the demand for gold was 4,582 tons and in 2012 it was 4,405 tons only.

The renewed interest in US dollars is also considered a reason for the fall in gold price. Investors feel dollar is a more secure investment than gold. When asked how much longer the negative trend is likely to persist, gold merchants said they were not sure, and that experts think the price of gold may further fall and are unable to give an accurate timeline. Indian buying is expected to provide some buffer for the price, and it is consumption season in India. Indian buyers in Kuwait are mainly responsible for the rush, and coinciding with festivals the consumption has grown.

Meanwhile, analysts are keenly watching the nature of demand from China and how it will respond to the current scenario. How does the price drop bode for merchants? Not very well, they note. The fluctuation affects profit margins; however, when the volume of sale increases the profit trimmings are off set. There is no specific tendency to stock in coins or biscuits. Jewels are also selling well.

© Arab Times 2013