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Factors That Affect Gold Rate in the UAE

By Factors That Affect Gold Rate in the UAE
  | Published: 27 March 2020 | Last Updated On: 18 January 2021

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Gold is one of those commodities that always manage to find a spot in headlines; it dominates various opinions and discussions globally. Traditionally, during festive and wedding seasons it has been observed that there is a steep rise in gold rates. While the demand for gold never settles multiple decisive factors that determine the current rate of gold rate in the UAE.

According to an article from the world gold council, based on statistics from 1990 to 2015, the most significant factor that affects the gold consumer demand in a country is income. It has been observed that gold demand rises with a rise in income levels. One percent increases in the overall per capita gold demand marks an increase of one percent in per capita income of the residents of the country. 

The second observation is that with every one percent increase in the gold rates in the UAE, the demand for gold falls by 0.5 % in the country. 

Apart from the factors mentioned above, some other important factors determine the gold rates in the UAE. 

Today we’ll cover all the factors that affect the gold rate in the UAE. 

Supply and Demand

Supply and demand economics influence the prices of physical gold products to a great extent. Increased demand in a short period accompanied by constrained supply can trigger prices to shoot in the market. Contrary to the first scenario an oversupply of the finished product with a weak demand pushes prices to go down. 

Inflation

Inflation marks a drop in the value of the currency in the global market. People during such phases of inflation tend to hold funds in the form of gold. When inflation remains over the higher side for prolonged periods then gold becomes the required tool to protect your financial stability. 

Gold and Interest Rates

According to a lot of financial experts, under normal conditions the relationship between gold rates in UAE and interest rates in the country is negative. When the rates rise the majority of investors switch to fixed income plans that provide fixed returns, unlike gold which has no such fixed or periodic return. 

Weakening Value of Dollar

Under normal conditions the relationship between dollar and gold rate in the UAE is inverse. The global market is dominated by USD any weakness in the value of USD pushes the prices of gold up and vice versa. With the falling value of USD, a lot of investors look for alternative ways to store value. 

Monetary policies

The biggest factor that affects the prices of gold is the monetary policy of the country which is governed by the Federal Reserve. Federal Reserve commentary affects gold rates in the UAE and across the globe. If the FOMC takes a step that implicates a rise in gold rates in the UAE, the opportunity cost of the interest borne assets rises. 

ETFs

Out of all the factors that affect the gold rate in the UAE, ETFs are the smallest influencer in the category. With an ongoing change in demand, the prices are affected greatly by buying and selling activities. 

In a nutshell

According to some recent statistics, the global demand for gold products is approximately 1000 times higher than the supply. With depleting gold reserves and no new mining technology in place most of the gold that makes its way to the markets globally is recycled. Decreased supply is another contributing factor that has dipped the price of gold since February.

With an irreplaceable position in various cultures and traditions, the demand for gold is never-ending., it is very important to have a sound understanding of all the factors that affect the gold rate in the UAE.