Dubai: Gold price jump catches jewellery trade off guard

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UAE - Gold prices on Wednesday jumped above $2,020, the highest level since March of 2022, and analysts predict that the yellow metal even has its eyes set on the previous highs of $2,075 per ounce mark tested in 2020 and beyond.

The impact of the sudden jump in gold prices was noticeable across Dubai’s jewellery trade as buyers appeared to be waiting for cues on a possible price reversal. Traders said the sudden fluctuation has caught the market off-guard at a time when the jewellery market was gearing up for a big boom in sales during the impending festivals including Vishu, Easter and Eid Al Fitr.

Precious metal experts attribute the reasons for the rise in gold and silver rates to a weakness in the dollar rate, poor US data, US Fed interest rate peak out, economic uncertainty and rising crude oil prices. "A primary reason for the rally in the precious metals is the softening dollar index. The Index has fallen to a two-month low as there is a widening belief that the Fed may not only pause but start slashing rates by the end of 2023. Being a safe haven, and often attracts investors' interest in times of uncertainty and slowdown, low rates," an analyst said.

Demand for gold has also been on the rise with investors ditching bank stocks and resorting to gold and Treasuries in large numbers following the shuttering of Silicon Valley Bank and Credit Suisse’s implosion.

Tim Waterer, the chief market analyst at Kohle Capital Markets, said gold and oil have been the star performers of the week so far, with both being on the ascent against the backdrop of a weakening dollar.

“In the case of gold, it’s appearing to be an ‘asset for all seasons’ at the moment because not only is it still seeing buying flows as part of inflation-hedging, but it is also rallying during risk-on sessions as the dollar slides lower,” said Waterer.

Analysts said the greenback has been facing some substantial headwinds in recent times, not just from a dovish turn from the Fed but also from what appears to be a growing move by some major economies to settle trade matters in a currency other than the dollar.

However, economists at Commerzbank believe that the yellow metal could correct lower if higher oil price sparks inflation fears.

Some analysts argue that higher inflation points to higher interest rates, which should weigh on the gold price. Therefore, it cannot be ruled out that the yellow metal price will shed at least some of the gains it chalked up if the higher oil price sparks inflation fears and thus rate hike speculation, they said.

Fitch Solutions has predicted that gold would notch a high of $2,075 in the coming weeks. The firm based that outlook on “global financial instability,” adding that it expects gold to “remain elevated in the coming years compared to pre-Covid levels.”

Demand for gold recorded a phenomenal rise in 2022 owing to “colossal central bank purchases,” according to the World Gold Council. Central banks bought a 55-year high of 1,136 tonnes of gold last year.