The glint of gold has caught the eye of Business Middle East.
Prices slid to their lowest level in nearly nine months, as the dollar rose to its highest in four years against a basket of major currencies.
Why gold fell
There were several influences at play, but the biggest was higher borrowing cost expectations from the Federal Reserve.
After the latest meeting of the Fed’s policy committee, Chair Janet Yellen said interest rates in the US will remain near zero for a “considerable time,” but she also projected a faster rate of increases when they do occur.
That pushed up the dollar, which makes gold less attractive; the traditional safe-haven investment is priced in dollars.
The Middle East has seen gold trades booming, especially since the beginning of the year, despite the high price volatility between the first and third quarters.
The Gulf region has become one of the premier locations in the world for buying and selling the precious metal.
The reasons for that include wedding customs and traditions that involve the purchase of relatively large amounts of gold for the bride to wear, as well as Middle East investors liking physical assets such as real estate and bullion.
Today, gold is part of a trend to invest in assets that are less volatile than currencies, particularly since the financial crisis of 2008.
Middle East view
For a markets perspective on these developments Euronews’ Daleen Hassan spoke to Nour Eldeen Al-Hammoury, Chief Market Strategist at ADS Securities in Abu Dhabi.
Daleen Hassan, euronews: “From your position in Abu Dhabi, what’s your view of the fall in gold prices and its impact to the region?”
Nour Eldeen Al-Hammoury, Chief Market Strategist, ADS Securities: “There are two major reasons for the recent declines. The first is due to the de-escalation of tensions between Russia and Ukraine and the peace agreement. The second reason is the rally in the US dollar as the markets believe that the Federal Reserve will be able to raise the Fed Fund rate next year.
“But there are doubts about the Federal Reserve policy and if it will be able to raise rates as promised. As for the region here, there are a lot of headlines in the newspapers showing that gold demands especially in the gulf region remain on the rise.”
euronews: “With these big movements of gold prices globally, what are the potential effects from the Federal Reserve’s actions, and what can investors do to respond?”
Nour Eldeen Al-Hammoury: “Since the beginning of the year we have been bullish on gold and at some point in the first half of the year, gold was the best asset classes performer. However, the geopolitical tensions and the de-escalation in Ukraine played a role in the current satiation.
“In the meantime, the Fed is promising that interest rates will rise toward 1.35 percent by the end of 2015. However, the Fed also mentioned that this might happen if the outlook holds. But there are signs that the economic stabilization is not there yet.
“The recent jobs, housing and inflation figures remain far away from the Fed’s targets. Therefore, if the outlook changes and the Fed delays the rate hike, gold may rally, but we still believe that gold won’t drop below $1,000 anytime soon. Therefore, investors may return to gold again at some point in 2015, whether to hedge against inflation or to securitise their wealth against any unexpected economic slowing down.”
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