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Wed 19 Feb 2020 04:02 PM

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Price hike in gold to hit Middle East consumers

Gold traded near the highest level since 2013 on concerns over the spread of the new coronavirus

Price hike in gold to hit Middle East consumers

Customers looking to buy gold can expect to pay a higher premium, as a result of the continuing deadly coronavirus crisis.

Gold traded near the highest level since 2013 on concerns over the spread of the new coronavirus and how it’s impacting global growth.

Karim Merchant, group CEO and MD, Pure Gold Jewellers, told Arabian Business: “At the local level, the concerns are around tourism from China being affected if the virus is not contained and also if it spreads to other parts of the world, it will eventually affect overall consumer demand and supply too.”

China’s death toll from the disease topped 2,000, while the province at the centre of the outbreak reported fewer additional cases. The flight to safety has benefited haven assets, with the rally spilling over to the palladium market, where a multi-year deficit is expected to widen in 2020.

Gold is up 5.6 percent this year as investors assess the impact of the disease on economic growth and appetite for risk amid speculation that the Federal Reserve will feel increased pressure to reduce interest rates. 

Price stability

Merchant believed the effects would also be felt by consumers.

“For the consumer it will mean higher prices, which means they may take some time to adjust to new prices before deciding to make purchases as everyone is hoping for price stability.”

According to Jameel Ahmad, global head of currency strategy and market research at FXTM, told Arabian Business that while a price rise is expected, it would be more gradual “meaning it should not come as much of a shock to observers”.

He added: “In the past month gold prices have moved higher by 3 percent but in the broader context, this isn’t the most significant of moves when considering how cautious the world has reacted to the coronavirus outbreak. On the flipside the US dollar has advanced by 3 percent as well during 2020 so far, with the Euro losing 3 percent of its value during the same period.

“Therefore, I would add that the moves in gold are equal to counterparts, whereas Oil prices as an example had suffered a fall of 20 percent at one point before a modest recovery following the virus outbreak.

“Where the local and regional market will need to be on the lookout for is what impact the impending economic slowdown in China will have on the GCC region. China accounts for around 15 percent of the global economy today and everyone relies on trading with China, and the consequent trade it receives from others based on Chinese demand for their own goods.”

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