Dubai gold prices drop Dh2.75 as US rate hike fears weigh on bullion.
Dubai: Gold prices in Dubai fell on Tuesday, offering shoppers a modest price break as international bullion came under pressure amid renewed concerns over US interest rates.
24K gold fell to Dh533.50 per gram from Monday’s close of Dh536.25, while 22K gold dropped to Dh494 from Dh496.50. Both popular grades were therefore Dh2.75 per gram cheaper than Monday’s closing rates.
The decline came as international gold prices remained subdued, with traders weighing renewed tensions in the Middle East against the prospect of higher US interest rates.
Reuters reported that spot gold was down 0.4 per cent at $4,428.54 an ounce early Tuesday, after hitting its lowest level since August 19 in the previous session.
Gold gets cheaper
For UAE shoppers, Tuesday’s price drop means a 10-gram purchase of 24K gold is Dh27.50 cheaper than at Monday’s closing rate, before making charges and other retail costs.
For 22K gold, the saving is also Dh27.50 on a 10-gram purchase compared with Monday’s closing price.
The decline follows a sharp pullback in international gold prices after Federal Reserve Chair Kevin Warsh delivered a hawkish speech last week, signalling that the US central bank may need to maintain its focus on containing inflation.
IG market analyst Tony Sycamore said gold has come under pressure following Warsh’s hawkish Jackson Hole speech, while renewed tensions around the Strait of Hormuz have pushed oil prices higher and added to inflation concerns.
Why the Fed matters
The key question for gold markets now is what the US Federal Reserve will do with interest rates.
Traders currently see a 66 per cent chance of a US rate hike in September, while the probability of a December hike stands at 89 per cent, according to the CME FedWatch Tool, as cited by Reuters.
Higher interest rates can put pressure on gold because the precious metal does not generate interest income. As yields rise, investors may have a greater incentive to hold interest-bearing assets instead.
For UAE buyers, this means gold prices could remain sensitive to major US economic data releases in the days ahead.
Middle East factor
At the same time, renewed tensions between the US and Iran are providing a counterweight to pressure on gold.
The two sides exchanged direct attacks following a month-long lull, while the latest escalation has also pushed oil prices higher.
This creates a complicated backdrop for gold. Geopolitical uncertainty can boost demand for the precious metal as a traditional safe-haven asset, while higher oil prices can fuel inflation and strengthen expectations that the US Federal Reserve will keep interest rates elevated.
Reuters quoted Sycamore as saying that a single US rate hike would not necessarily be a major game changer for gold, but two or three hikes could have a more significant impact.
India prices
Gold prices in India moved in the opposite direction to Dubai on Tuesday.
- 24K gold: ₹156,930 per 10 grams, up ₹170 from ₹156,760 on Monday.
- 22K gold: ₹143,850 per 10 grams, up ₹150 from ₹143,700 previously.
Gold remains on a strong run
Despite Tuesday’s decline in Dubai, gold remains significantly higher over the longer term. Bloomberg market commentary said bullion was still up around 10 per cent in August, putting it on track for its strongest monthly gain since January.
Nicky Shiels, head of research and metals strategy at MKS PAMP SA, described the competing forces from the US Treasury and Federal Reserve as a “tug of war”. She expects the so-called debasement trade — driven by concerns over sovereign debt and currency devaluation — to continue into September, potentially providing further support for gold.
