Gold and jewelry sales will gain momentum in the coming weeks, as gold prices are likely to sustain a downward trend due to a weak global economy, uncertainty over the US-China trade war, and the forthcoming meeting of the US Federal Reserves this week, experts say.
Analysts and market experts said that gold prices, which hit six-year highs of $1,557 in September, will test the resistance barrier of $1,445 per ounce in the coming weeks and may drop as low as $1,420 in the short-term period.
Leading jewelers pinned their hopes on lower gold prices, the festive season, and a tourist influx for the Dubai Shopping Festival to propel their sales this month, with the trend likely to continue until the next quarter.
"The demand for gold and jewelry in the post-Diwali period will hit a peak during the months of December to March. Shoppers, who have held back buying gold because of rising prices, can now take advantage of the current price trend," said John Paul Alukkas, executive director, Joyalukkas Group.
Gold, which is up 21 percent so far this year, slid one percent on Friday as strong US jobs data renewed bets that the Federal Reserve would stand pat on interest rates and also boosted demand for riskier assets. Spot gold slipped to $1,460.03 per ounce on Friday, reflecting a decrease of nearly 0.3 percent so far this week. US gold futures settled down 1.2 percent at $1,465.10 per ounce last week.
"On the technical side, a close below the $1,460-65 area could open gold up to the $1,445-47 November lows, and beyond that towards $1,400-$1,420 congestion area over the summer," said Tai Wong, head of base and precious metals derivatives trading at BMO.
Looking ahead, analysts said that the market focus will be on the US Fed's two-day meeting, starting on Tuesday. The US central bank is expected to keep interest rates on hold at 1.50 percent to 1.75 percent. They said that lower interest rates reduce the opportunity cost of holding non-yielding bullion and weigh on the dollar.
Shamlal Ahamed MP, managing director for International Operations at Malabar Gold and Diamonds, said that gold is currently at a favorable price level compared to the last three to four weeks.
"The performance by gold in the last one year has been excellent. Considering the global economic concerns and outlook, it looks like gold is the go-to commodity for investors and retail jewelry customers alike," Ahamed told Khaleej Times.
He said that the holiday season, coupled with profit booking by the year-end, should lead to an increase in gold prices in the near future.
To a question, he replied that 2019 has been a challenging year, but "we are seeing a positive trend" since November. "We are very optimistic about 2020," he said.
Demand to peak
John Paul Alukkas said that gold prices tend to be at their lowest level from December to March and that the consolidation of prices is the icing on the cake, as it makes it easier for more people to invest in their favorite metal.
"My advice to gold and jewelry lovers would be, make hay when the sun shines. Gold prices are unpredictable, so this period would surely be an ideal time to buy," he said. "No matter which decade or era you live in, I strongly believe gold is still a safe and secure investment to make. Any investment in gold will certainly yield returns. If not in the short term, definitely in the long run."
Over the past 50 years, he said that gold prices have been on the rise and that the trend shall continue. Also, gold is a highly valued asset, is universally recognized and offers the advantage of instant liquidity anytime anywhere. So yes, gold is still one of the best investment options, he said.
To a question about gold and jewelry sales in 2019, he said: "Like every retail jeweler, we also witnessed a slump in sales of gold jewelry in the middle quarter as the prices soared. However, the last quarter has energized our sales owing to stabilizing gold prices, the approaching festive season and aninflux of tourists. We have also observed the demand for high-end jewelry, as customers nowadays are more inclined towards sophisticated and personalized jewelry."
Long-term outlook bullish
Carsten Menke, head of Next Generation Research at Julius Baer, said that the escalation of tensions in the summer fuelled the bullish mood among short-term traders and lured trend followers into the gold market.
"The subsequent de-escalation cooled the bullish mood and triggered some profit-taking. Beyond these short-term swings, we see the medium- to longer-term global growth outlook as the main fundamental factor for gold. Although recession fears have faded since summer, global growth remains on shaky grounds and should slow again as the next year progresses, supporting the demand for gold as a safe haven. We remain convinced about the longer-term upside for gold against this backdrop and reiterate our constructive view, expecting prices to reach $1,500 and $1,575 per ounce in 3- and 12-months' time, with further upside beyond that," Menke concluded.
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