Abu Dhabi, UAEFriday 20 September 2019

Why is the price of gold so high right now?

Gold has risen on the back of fears of a global recession

Gold is considered as a safe haven as an asset due to current situation in market. Michaela Handrek-Rehle/Bloomberg
Gold is considered as a safe haven as an asset due to current situation in market. Michaela Handrek-Rehle/Bloomberg

Gold prices climbed above the $1,500 mark to six-year highs this month as investors concerned about the state of the global economy sought haven assets.

The spot gold price rose as high as $1,526.95 per troy ounce last week, reaching a level not reached since April 2013. On Tuesday, gold was up 0.82 per cent at $1,508 per ounce, with rates in Dubai at Dh181 per gram of 24 carat gold.

Gold is expected to increase further in the coming days due to fears of a global recession, or at least a slowdown in economies worldwide.

Why is the price of gold so high right now?

A number of factors are influencing gold prices currently, including the trade war between the US and China, increasing tensions in the Arabian Gulf's Strait of Hormuz, Britain's potential exit from the European Union and a other threats to global trade. Sluggish economies in many countries are also leading central banks to cut interest rates, weakening major currencies and creating more demand for the yellow metal.

“Gold is considered as a safe haven as an asset due to uncertainty in the market. People are investing in gold, leading to higher prices,” said Tushar Patni, managing director of Ajanta Jewellers in Abu Dhabi.

It is also rising due to record-breaking purchases by the central banks.

A report by the World Gold Council this month said that in the first half of this year central banks bought 374.1 tonnes of gold – a 57 per cent year-on-year increase and the highest amount since exchequers became net buyers of gold in 2010.

The gold rally has, despite general stock market weakness, been fuelling strong gains among gold mining stocks. The GDX ETF (exchange-traded fund), which tracks major gold mining companies has rallied 37 per cent year-to-date and 13.5 per cent in this quarter alone.

How is gold priced?

In the international market, the price of gold is determined by the forces of demand and supply. Higher demand leads to higher prices and vice versa. Currently, demand is very high, leading to a spike in prices. Gold has increased in value by 18 per cent since the start of the year.

Why is Dubai a major gold marketplace?

Dubai is a major market for gold because of its low-tax environment and the presence of a large number of gold shops selling the precious metal at a low profit margin. According to Mr Patni, there are about 800 shops in Dubai alone, with many based in Deira's Gold Souq and other places. Value Added Tax is levied on jewellery purchased but there is no VAT on gold bars. Moreover, VAT is fully refundable on purchases made by tourists.

What are the ways to invest in gold?

Investors can buy physical gold directly from shops, traders and even a number of gold ATMs. There is no restriction on the amount one can purchase, although there are limits on the amount that can be carried into certain countries. People can also invest by proxy either by buying shares in companies that mine for gold, or in gold-based ETFs.

Updated: August 21, 2019 10:20 AM

SHARE

SHARE