Regional demand for gold could dip if oil prices continue fall

Gold may extend a two-year slump this year because of a stronger US dollar and the expected increase in US interest rates this year.

Gold sales increased by 8 per cent from a year ago at the Dubai Shopping Festival, a high season for gold sales in the emirate. Reem Mohammed / The National

Demand for gold jewellery in the Middle East, including the UAE, could dip this year if oil prices continue their downwards trajectory, the World Gold Council said yesterday.

Total gold demand in the UAE fell last year in volume and value, led by a decline in bars and coins. Demand in the UAE last year dropped by 12 per cent from 2013 to 68.2 tonnes, and it tumbled 11 per cent in the fourth quarter from the year-earlier period.

“Bullion seems to be equally bad this year. When there is volatility in the prices, we don’t see huge demand coming up,” said Pradeep Uni, the head of trading at Dubai-based Richcomm Global Services, an international commodity services company.

“There are more returns in the equity markets in the United States and others.”

UAE jewellery sales could rise by up to 5 per cent this year, depending on geopolitical events and the volatility in the price of gold, according to Tawhid Abdullah, the chairman of the Dubai Gold & Jewellery Group.

Gold sales increased by 8 per cent from a year ago at the Dubai Shopping Festival, a high season for gold sales in the emirate, Mr Abdullah said. He forecast gold prices would range between US$1,050 and $1,300 an ounce this year.

“The drop in the euro eased a little bit the cost of manufacturing, so the consumer will end up paying a little less,” Mr Abdullah said.

Gold prices were up 0.3 per cent to $1,223 an ounce in early morning trading yesterday. Prices fell last year by 1.5 per cent to end at $1,184.10 an ounce, after having peaked at about $1,900 in 2011.

Gold, a safe-haven investment in times of economic turmoil, may extend a two-year slump this year because of a stronger dollar and the expected increase in US interest rates this year.

Total demand for gold in the Middle East fell 11 per cent last year, and it dipped by 3 per cent in the fourth quarter from a year earlier, driven by lower sales of bars and coins.

“A continued preference for 18-carat and lighter-weight pieces among the region’s consumers contributed to the decline [of jewellery demand],” said the World Gold Council. “Lower oil prices have yet to feed through to discernible anxiety at the consumer level. Should they remain low for a prolonged period, demand for gold jewellery could suffer in 2015.”

Weak oil demand means less oil income for energy-exporting countries, which could affect gold consumption, particularly in the energy-exporting Arabian Gulf region.

The demand decline in the Middle East last year was steeper than the global drop in gold demand, which was down 4 per cent last year from 2013 to 3,924 tonnes. But fourth- quarter world demand rose 6 per cent from a year earlier, led by demand for jewellery and central bank buying of the precious metal. The drop in global demand last year was not surprising because consumption demand in 2013 grew at a record pace, the council said.

Last year, India overtook China as the biggest consumer of gold, despite a 14 per cent drop in total Indian demand from 2013. Chinese gold demand tumbled 38 per cent last year from 2013.

Total jewellery demand for the year was down 10 per cent from 2013. In 2014, India had its strongest year for jewellery demand since the World Gold Council’s records began in 1995. “This was driven by wedding and festival buying despite the presence of government restrictions on gold imports for most of the year,” the council said.

Central banks continued to see the value of gold as a reserve asset last year. Annual central bank demand was up 17 per cent to a 50-year high, making 2014 the fifth consecutive year that central banks were net purchasers of gold.

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