Gold prices set to tumble

Gold is a popular hedge with Arab investors and in certain Gulf states is even available in ATM machines
Gold is a popular hedge with Arab investors and in certain Gulf states is even available in ATM machines

Middle East investors have been warned that the price of gold is likely to fall significantly in coming months. At the beginning of September spot gold stood at $1,141 an ounce, up slightly by 0.6 per cent on weak equities and US dollar.

The metal has long been considered a useful ‘hedge’ in regional investment portfolios. The overall sentiment towards the yellow metal will turn increasingly bearish next year and the prices are likely to hit below $1,000 by March,  analysts have said. Quoting ABN Amro’s forecasts, the price of the bullion will trade hands at an estimated $1,000 an ounce by December this year. Prices will fall further in the coming year, with the rate tumbling to as low as $800 by December 2016.

The forecasts were contained in the Dutch bank’s research note, which also highlighted ABN Amro’s position that the precious metal’s safe-haven status has been reduced significantly. The bank’s price forecasts are based on, among others, negative market sentiment and expectations that the United States Federal Reserve will increase interest rates and the US dollar will soar. “We are of the opinion that gold’s safe-haven status has been reduced significantly,” said the bank in the note.

gold“The gold market has dramatically changed with the arrival of gold products that opened the market to a wider public. Gold is not only bought as a protection for uncertain times but also for speculation purposes. The latter goes completely against gold’s safe haven character and at times it more than overshadows it.”

Rolf Schneebeli, CEO of Gold Services AG, however, said that the bank’s forecasts are likely to be revised later, adding that it is still “quite far out” to predict how the bullion will perform more than 12 months from today. Schneebeli still believes that prices of the precious metal will hover around $1,080 to $1,100 by the end of 2015.

“Generally, I hold ABN Amro’s analysis in high esteem. However, it seems to be a very sporty prediction,” Schneebeli said. “[The fourth quarter of 2016] is quite far out and I could well imagine that such predictions will be revised as we get closer to that quarter. For the time till end of this year, I would still think the $1,080 to $1,100 level should hold. The ABN Amro’s forecast reminds me a bit of the late 90s when the UBS analyst constantly forecast a price of below $100. It went the other direction.”

Karim Merchant, group CEO and managing director of Pure Gold Jewellers, said there is a possibility that the yellow metal will trade in the average of $900 to $1,100 an ounce. “Predicting the future is always speculative but with the current information that we have today, we feel that gold we will trade in the average range of $900 to $1,100.If there is a major macro economic change, anything is possible including gold going back to a bull run.”

This article originally appeared in Gulf News

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