BY MOHAMMAD SHOEB
Taking advantage of a sharp fall in prices of gold, many people in Qatar have gone on a gold buying spree despite forecasts of a further fall in the price of the yellow metal to $1,250 per ounce.
Local bullion suppliers are running out of stock and are waiting for fresh deliveries to meet the surge in demand. The price of a one-tola bar (11.664 grams, 24 carats) at Al Fardan Exchange Co was QR1,963 ($539.167) on Thursday, but there was no gold to buy.
“Qatar’s gold market is different from the rest of the world. We are seeing high demand for gold but we have no stocks. Just a couple of days ago we received two parcels of about 20kg each, but finished it within two days. People are buying in bulk despite negative forecasts for gold price,” said a senior official of Al Fardan Exchange, requesting anonymity.
He added: “Analysts say the price of gold may drop further to $1,250 (per ounce), yet a large number of people, including Qataris, are investing heavily in gold. We called Dubai, but there is no sign of receiving any parcels before Sunday.”
A source in Gulf Exchange, another local supplier of bullion, said: “We had very limited stocks of gold bars, which were sold within two hours.”
According to reports, a bear market around the world turned to panic selling and investors exposed to gold suffered their biggest losses in a day in the last three decades as prices crashed through the $1,400 (QR5,097) an ounce (28.3495 gram) level.
However, that didn’t have much impact on gold sales in Qatar. To take advantage of the low prices, and in some cases make a few extra bucks, many rushed to buy gold, but had to return disappointed.
“I have no worries about keeping the value of my savings intact and buying gold. Luckily, by the end of every month, I am left with no money,” joked an Indian, who gave only his first name as Feroz.
“However, my wife, who is working here as a government employee, had some savings, so I had come here to buy a few gold coins for her with the hope that the metal will recover in future. But I am told there is no gold for sale. My wife does not like gold jewellery. Now we will have to opt for it despite the fact that jewellery carries making charges and it is not 100 percent pure,” he said.
Another would-be buyer, who did not wish to be named, was critical of the gold retailers. “I smell something fishy. Whenever there is a sharp decline in bullion prices, the retailers quickly declare that they are running out of stocks.”
Unable to invest in bullion, many turned to jewellery. People of many nationalities — mostly Asians — thronged jewellery shops to buy gold at a price about 10-15 percent higher than the price of bullion, as jewellers add making charges to their creations. Items made of 22-carat and 21-carat gold were selling for QR157 and QR150 per gram, respectively. Ornaments in 18-carat gold were available for QR130 per gram.
As gold prices fell by 13 percent in just two days a week ago, big investors worldwide lost billions of dollars. The sharp drop in prices took gold to two-year lows. Some who were exposed to the most sought after metal lost over 20 percent of the value of their assets, making them think if it was the end of the metal’s era as a safe haven, after an impressive 12-year bull run.
The future price of gold in New York, for June delivery, went as low as $1,355.50 per ounce, marking an intraday fall of 9.7 percent — the steepest in percentage terms since a 9.6 percent loss in February 1983.
Market analysts suggest that as there are signs of economic recovery in the US and some other parts of the world, the market is in a “liquidation mode” and people want to reduce their exposure to gold as they fear that the prices may go below $1,300 an ounce.
Demand and supply
Broadly, the demand for gold comes from four major sectors: central banks, jewellers, private investors and industries. Over the past decade, people faced with high inflation, weak economic data and depreciation in the US dollar often preferred to park their money in gold, a commodity considered a safe haven for hard-earned savings. They bought gold to avoid erosion in their savings due to inflation, and to sell when the market was bullish.
The sharp decline in the prices of gold was not unprecedented. Everything that goes up has to come down, sooner or later. Due to a continuous rise in demand for gold over the past 10 years, prices had increased more than five-fold, from $330 per ounce to a peak of $1,900 per ounce in August 2011. Some bought gold speculating that the price would continue to rise while others took refuge in the yellow metal as an alternative to holding dollars as they feared that stimulus programmes by the US would further weaken the currency.
In a way, it worked like a boat of limited size and capacity trying to rescue an unlimited number of people trapped in a whirlpool. As all of them climbed into the boat, it couldn’t bear everybody’s weight, and capsized.
Another reason for the high supply and low demand could be the central banks of some countries, including China, Russia, Mexico, Turkey and many others, who were net buyers until recently but are no longer buying gold and are instead exchanging it for dollars. Then there are the countries trapped under huge piles of sovereign debt, which have started selling their gold reserves to bail out their financial systems.
THE PENINSULA
