Gold rallied on Wednesday to touch a record high of $2,480 driven by mounting hopes of a US interest rate cut in September, after recent comments from Federal Reserve officials.
Weakness in economic data and falling inflationary pressures continue to pressure bond yields, which help to boost the appeal of low and zero-yielding assets, keeping the gold outlook positive.
Gold prices hit a high of $2,449.89 on May 20 amid a rally that happened against traditional headwinds, such as a strong dollar and high interest rates. The metal was trading at $2,473.2 at 11.56am UAE time on Wednesday.
“Gold hit a fresh record on the back of falling US yields, that decrease the opportunity cost of holding the non-interest bearing gold, and on the back of rising geopolitical tensions on news that Iran reportedly tried to kill Donald Trump in the past weeks, although there has been no evidence that the weekend’s shooting has anything to do with them,” says Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
“It’s probably just a matter of time before we see the yellow metal hit the $2,500 per ounce milestone.
“Some profit-taking could kick in at that level, though, given that at the current levels, gold is entering the overbought market territory, suggesting that the yellow metal may have been bought too fast in a too short period of time – as the rest of the assets that have been boosted by the super duo of Trump and [Fed chairman Jerome] Powell – and it would be healthy to see some minor downside correction.”
Markets expect a rate cut of at least 25 basis points by the Fed at its September meeting, followed by two more before the end of January 2025. The allure of non-yielding bullion tends to rise when interest rates fall.
Mr Powell said on Monday that recent inflation readings “add somewhat to confidence” that the pace of price increases is returning to the central bank’s target in a sustainable fashion, remarks that suggest a turn to rate cuts may not be far off.
Fed governor Adriana Kugler on Tuesday also expressed cautious optimism that inflation is returning to the US central bank's 2 per cent target.
The US Labour Department reported last week that the core consumer price index fell in June for the first time in more than four years, with the annual rate slowing to 3 per cent from 3.3 per cent in May. Markets are now awaiting the release of US monthly retail sales data for new directional momentum.
The Bank of America issued a note in June suggesting that gold could hit $3,000 an ounce over the next 12 to 18 months. The key is investment demand, the lender said.
Data from the World Gold Council trade body suggests central banks are feeling increasingly warm towards gold as a useful financial asset, rather than a historic keepsake.
Top consumer China still has plenty of appetite for official gold purchases despite pausing in May and June, as its bullion holdings remain low as a share of reserves and geopolitical tensions persist, according to a policy insider, industry experts and data.
Locally, the Central Bank of the UAE's gold reserves reached Dh20.36 billion by the end of April 2024, a 12 per cent increase from the same period in the previous year, said Vijay Valecha, chief investment officer at Century Financial.
The latest data published by the central bank also indicated that its gold stockpile grew by 3.5 per cent month on month, rising from Dh19.615 billion in March 2024, he added.
“There is no doubt that the recent surge in gold prices can be at least partially attributed to a declining dollar and falling bond yields, thanks to weaker-than-expected US data and an unexpected drop to 3 per cent in US consumer inflation last week,” said Fawad Razaqzada, market analyst at City Index and Forex.com.
“These factors have enhanced the attractiveness of assets with low or no interest returns.”
The metal has shown resilience against dollar strength at various points throughout this year, indicating that investors view gold as more than just a foreign exchange product, he said.
Its appeal lies in wealth preservation, particularly as years of high inflation have significantly diminished the purchasing power of fiat currencies around the globe. Gold continues to attract interest for its value retention capabilities, he added.
“Technical indicators suggest continued bullish momentum, making bullish trades favourable over bearish ones with the potential to reach new record highs soon,” Mr Razaqzada said.
The gold trend appears strongly bullish in the near term due to growing expectations that the Fed will start cutting interest rates in September, said Rania Gule, market analyst at XS.com.
Dovish remarks from Mr Powell increased hopes for the beginning of monetary easing soon, adding to the rate-cut trend and further boosting gold prices, she added.
“Here, the price could be influenced by upcoming data, increasing its sensitivity in either upward or corrective downward directions, so traders and investors should exercise caution," Ms Gule added.
UK-EU trade at a glance
EU fishing vessels guaranteed access to UK waters for 12 years
Co-operation on security initiatives and procurement of defence products
Youth experience scheme to work, study or volunteer in UK and EU countries
Smoother border management with use of e-gates
Cutting red tape on import and export of food
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UAE currency: the story behind the money in your pockets
Analysis
Maros Sefcovic is juggling multiple international trade agreement files, but his message was clear when he spoke to The National on Wednesday.
The EU-UAE bilateral trade deal will be finalised soon, he said. It is in everyone’s interests to do so. Both sides want to move quickly and are in alignment. He said the UAE is a very important partner for the EU. It’s full speed ahead - and with some lofty ambitions - on the road to a free trade agreement.
We also talked about US-EU tariffs. He answered that both sides need to talk more and more often, but he is prepared to defend Europe's position and said diplomacy should be a guiding principle through the current moment.
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Heavily-sugared soft drinks slip through the tax net
Some popular drinks with high levels of sugar and caffeine have slipped through the fizz drink tax loophole, as they are not carbonated or classed as an energy drink.
Arizona Iced Tea with lemon is one of those beverages, with one 240 millilitre serving offering up 23 grams of sugar - about six teaspoons.
A 680ml can of Arizona Iced Tea costs just Dh6.
Most sports drinks sold in supermarkets were found to contain, on average, five teaspoons of sugar in a 500ml bottle.
MATCH DETAILS
Chelsea 4
Jorginho (4 pen, 71 pen), Azpilicueta (63), James (74)
Ajax 4
Abraham (2 og), Promes (20). Kepa (35 og), van de Beek (55)
COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
MATCH SCHEDULE
Uefa Champions League semi-final, first leg
Tuesday, April 24 (10.45pm)
Liverpool v Roma
Wednesday, April 25
Bayern Munich v Real Madrid (10.45pm)
Europa League semi-final, first leg
Thursday, April 26
Arsenal v Atletico Madrid (11.05pm)
Marseille v Salzburg (11.05pm)
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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