Gold pushed above the US$1,200 threshold yesterday after comments from the Federal Reserve chairwoman, Janet Yellen, pointed to slower interest rate hikes amid a lukewarm US economic outlook.
The precious metal gained about 2.9 per cent to $1,216.90 an ounce yesterday. It has risen about 14 per cent so far this year on expectations that the Fed will slow down its interest rate increases amid global economic volatility.
Gold is seen as a safe haven investment during economic upheavals, such as the recent stock market slump and economic slowdown in China. “The Federal Open Market Committee anticipates that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate,” Ms Yellen told lawmakers on Wednesday. “In addition, the Committee expects that the federal funds rate is likely to remain, for some time, below the levels that are expected to prevail in the longer run.”
The gold rally comes after prices fell last year for the third year in a row, shedding 11 per cent as the United States increased its interest rates in December for the first time in a decade and the dollar rallied against other currencies.
Gold prices tend to fall when interest rates rise because the precious metal bears no interest. A strong dollar also makes the dollar-denominated commodity expensive for buyers in other currencies.
Meanwhile, demand for gold jewellery in the UAE declined 3 per cent in the fourth quarter of last year as lower oil prices and dwindling tourist revenue impacted the sale of the precious metal, a report said yesterday.
In the Middle East, demand fell 5 per cent in the fourth quarter from a year earlier as regional conflicts dampened appetite for the bullion, according to a World Gold Council report.
“Unsurprisingly, further falls in the price of oil and continued conflict across the region have fed through to declines in gold jewellery consumption,” the report said. “Declining tourist revenue was an added factor in the UAE.”
The report’s findings jar with figures from the Dubai Gold & Jewellery Group.
Dubai’s gold sales, which grew about 5 per cent to about Dh14 billion last year from a year earlier, had a good start to this year during the shopping festival in January, Tawhid Abdullah, the chairman of the group, said this week.
Gold jewellery sales in Dubai are forecast to rise by about 5 per cent this year as consumers buy the metal as a savings product amid economic instability, he added.
Globally, gold demand in the fourth quarter grew 4 per cent as central banks bought bullion, while jewellery demand fell by one per cent, the report said.
“The bullion’s strong performance comes at an interesting time for Dubai gold industry which has been battling significantly lower demand from traditional overseas market like China and India,” said Gaurang Desai, the chief executive of the Dubai Gold and Commodities Exchange, a derivates exchange. “The uptick in prices may increase investment demand and boost sentiment for the jewellery sector in due course.”
dalsaadi@thenational.ae
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Why it pays to compare
A comparison of sending Dh20,000 from the UAE using two different routes at the same time - the first direct from a UAE bank to a bank in Germany, and the second from the same UAE bank via an online platform to Germany - found key differences in cost and speed. The transfers were both initiated on January 30.
Route 1: bank transfer
The UAE bank charged Dh152.25 for the Dh20,000 transfer. On top of that, their exchange rate margin added a difference of around Dh415, compared with the mid-market rate.
Total cost: Dh567.25 - around 2.9 per cent of the total amount
Total received: €4,670.30
Route 2: online platform
The UAE bank’s charge for sending Dh20,000 to a UK dirham-denominated account was Dh2.10. The exchange rate margin cost was Dh60, plus a Dh12 fee.
Total cost: Dh74.10, around 0.4 per cent of the transaction
Total received: €4,756
The UAE bank transfer was far quicker – around two to three working days, while the online platform took around four to five days, but was considerably cheaper. In the online platform transfer, the funds were also exposed to currency risk during the period it took for them to arrive.
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