Gold prices in Dubai fall amid strengthening US dollar and ahead of Indian holidays

On Tuesday morning, gold prices in Dubai dropped below the 500 dirham mark. Over the past month, the precious metal has lost 30.5 dirhams.

Specifically, the 24K variant traded at 497 dirhams per gram, which is below the 500.50 dirhams level recorded at the close of trading on Monday. Other varieties, such as 22K, 21K, 18K, and 14K, also showed declines, trading at prices of 460.25, 441.25, 378.25, and 295 dirhams per gram, respectively.

Globally, spot gold rose by 0.07 percent, reaching $4143.48 per ounce. Silver increased by 0.52 percent, trading at $57.44 per ounce.

Gold's weekly return remained more stable, showing a drop of 0.70 percent on Monday, while silver faced pressure, falling by 6.33 percent. Financial analyst and Chief Investment Officer of Century Financial, Vijay Valecha, commented on this situation.

Following comments from US Federal Reserve Chairman Kevin Warsh at the annual IMF meeting in Bangkok, gold recovered above the $4180 mark as traders adjusted their expectations regarding interest rate hikes.

Valecha noted that Warsh made no statements about the results of the Fed meeting this month, causing the probability of a rate hike in October to decrease from 21 percent last week to 12.7 percent.

He also explained that this negatively affected US Treasury bonds across the yield curve, contributing to the recent weakness of the US dollar and supporting the non-yielding metal. Furthermore, oil prices fell from monthly highs after US President Trump canceled sanctions and tariffs on Russian energy to keep Moscow at the negotiating table on Ukraine.

According to Valecha, this weakened inflation concerns and expectations of tighter Fed policy. Gold also attracted demand for capital preservation amid concerns raised by artificial intelligence investments, which triggered stock sell-offs and bond yield declines.

Gold prices showed an increase in both Dubai and the global market on Friday morning, rising by more than 2 dirhams per gram at the start of trading.

The price of 24-karat gold on Friday morning was 503.0 dirhams per gram, which is higher than the figure of 500.75 dirhams per gram recorded at the close of markets on Thursday. Among other varieties of yellow metal, 22-karat gold was sold at 466.9 dirhams per gram, 21-karat gold at 446.75 dirhams per gram, and 18-karat gold at 363.0 dirhams per gram.

The spot weight of gold traded at $4173 per ounce at 9:30 AM UAE time.

Karsten Menke, Head of Next Generation Research at Julius Baer, noted that the unexpectedly high inflation figure in the US this week intensified concerns about further interest rate hikes by the US Federal Reserve, which in turn put pressure on gold and silver prices.

Menke added that despite short-term fluctuations driven by sentiment, the fundamental basis remains unchanged. He believes that in the short term, the growth potential for gold and silver is limited as long as the Fed continues to fight inflation. However, in the long term, growing concern over US debt and its associated interest burden should provide support.

He also mentioned that the gold-to-silver ratio has returned to levels he considers reasonable, prompting him to close a long position.

Menke emphasized that the gold and silver markets reacted negatively to the US inflation data. The high overall figure, including energy prices, strengthened concerns about further Fed rate hikes. After the release, the gold price fell by 2%, and silver fell twice as much.

He concluded that, excluding short-term sentiment-driven movements, the fundamental picture for gold and silver has not changed. In his opinion, the potential for decline will also be limited, provided the Fed raises interest rates less frequently than anticipated in money markets.

The start of the week was marked by stable gold prices in Dubai, coinciding with the beginning of the Indian festival Navratri on Sunday. According to data from Dubai Jewellery Group, 24-karat gold was priced at 505.5 dirhams per gram on Monday. Meanwhile, 22-karat, 21-karat, and 18-karat gold traded at prices of 468, 448.75, and 384.75 dirhams per gram, respectively. The most affordable option, 14-karat gold, sold for 300 dirhams per gram on Monday morning.

The nine-day Navratri festival is considered an auspicious period for purchasing gold. During this holiday, many people buy gold jewelry, coins, and bars, viewing them as symbols of prosperity, wealth, and good luck. Retailers often note an increase in demand as families make festive purchases and investments.

Spot gold fell by 0.16 percent to $4188 per ounce, while silver dropped by 0.14 percent to $223.55 per ounce.

Simon-Peter Massabni, Head of Business Development at XS.com, noted that gold is entering a critical phase, trading around $4185 per ounce while attempting to regain the $4200 level. He added that one of the primary factors supporting gold is the weakening US dollar and falling Treasury yields, which could give the precious metal more room to recover. A weaker dollar makes gold cheaper for holders of other currencies, and lower yields reduce the opportunity cost of holding an asset that does not generate regular income. However, according to his forecasts, these favorable conditions will only persist if yields continue to decline. If the dollar regains strength and Treasury yields rise again, gold could quickly lose a significant part of its recent momentum.

According to Massabni, the most important factor determining gold's next move will be the US Consumer Price Index report expected this week. He emphasized that markets analyze inflation not as an isolated economic indicator, but as a key factor shaping expectations regarding the Federal Reserve's monetary policy. If inflation comes in below expectations, pressure for tighter monetary policy may ease, and yields could fall, creating a more favorable environment for gold growth. Conversely, if the data shows more persistent inflationary pressure, expectations for further interest rate hikes could resume, potentially pushing the dollar and yields higher and putting new pressure on the precious metal.

Massabni expects increased volatility before the report release, and the market's reaction to any inflation surprise is likely to be more significant than current fluctuations in gold prices.