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4 Factors That Affect Past and Future Gold Prices in UAE

By PolicyBazaar
  | Published: 09 July 2020 | Last Updated On: 18 January 2021

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As most of you might be aware, the Gulf Country is home to the City of Gold, Dubai. In the year of 2002, the rate at which gold was traded in monetary terms of US Dollars was US$300 per troy ounce. In the year of 2010, the same rate rose above US$1,400.

What caused the gold rate in UAE and all over the globe to go up this high? What are the gold rate predictions made by the experts when it comes to the gold rate in UAE and other parts of the world?

Theories for the Rising Gold Rate in UAE

The experts in the industry have come to 4 main theories to put some reasoning to this rise in the gold prices. While no theory can be a 100% accurate, each of them has played some role or the other in gold rate predictions and rise.

Commodities and Inflation

The simplest theory to exist is that the commodities, even gold, rise just like the everyday goods when inflation hits. The relentless effects that inflation brings along with it can be seen using the Customer Price Index i.e., CPI for the UAE. The CPI tends to track the cost of services and goods in more than 200 item categories in order to provide a practical cross-section of how far a Dirham goes. The item tracked by CPI includes housing, food, vehicles, clothing, education, healthcare, and much more.

The question lies: how much of the recent gold rate increase can actually be attributed to the relationship that exists between historical inflation and gold prices? The data taken from the CPI calculator will help in clearly seeing that inflation has played a minor role when it comes to the increase in the gold rate in Abu dhabi.

Gold’s Rising Demand

Is it possible for gold’s value to rise simply because of a rise in demand, including the jewelers’ wishes to buy gold? While demand does play an essential role when it comes to fixing up a price for a product or a commodity, the demand shoes a rough increase by 20% between the years 2001 to 2010, and that is not sufficient to be the only factor that influences.

A Form of a Safe Haven Currency

Across the globe, gold is considered to be a safe haven. Gold used to act as a reserve currency of the world in the past. It will be very difficult for you to find a country that will refuse to accept gold. Keeping this in mind, you can pretty much imagine what happens when the national currency is affected in case of inflation, natural disasters’ occurrences, and political unrest. When the usage or future value of a currency is doubtful, people turn back to this stable money that can be used anywhere – gold. It is definitely a safe haven when there is any uncertainty arising.

Generally, when the currency value of the dollar drops, gold’s value goes up. The reason behind this inverse relationship is that now with the lower-valued dollar, one will have to spend more on acquiring the same amount of gold.

Investors Exercise Power over Gold

Consider the following statistics:

  • In the year of 2002, the demand for investment in gold forms such as gold coins, bars, and ETFs, made up roughly about 10% of the demand. At the same time and the same year, jewelry roughly made up over 79% of the total demand.
  • In the year of 2010, gold investors roughly totaled 35% of the gold’s demand, while the jewelry had 54%.

These stats show that investors have been a vital factor when we talk about gold’s 20% rise in demand in the past decade.

Some Common Questions

With this, the experts are also seeking to know where they should expect the gold rate in UAE will go. Will they go even more up, or will they drop?

To figure this out, the gold investors need to consider these difficult yet essential questions:

  1. Will the rise of gold purchases in China, India, among other governments increase the rate even further?
  2. Will the weakness or strength of the dollar continue to have an inverse effect on the gold rate as it has had in the past?
  3. Will, the market of the gold futures experience constant growth, further having an impact on the gold rate?
  4. With time, will gold retake the role of the reserve country of the world?

The Final Say About Gold Price Predictions

While it is next to impossible to answer the questions with surety, understanding the different factors that impact the price of gold will help you, as an investor, to make predictions that are informed and smart when it comes to the future gold rates.