[2007-10-16]  Traders Wary as Gold Hits 28-Year Peak
Gold retailers across Saudi Arabia, already grappling with falling sales, are in jitters following yesterday’s news that the precious yellow metal rose to a 28-year peak. It was quoted around $756 per troy ounce, up from $748.40/749.10 quoted late in New York on Friday.

A weak dollar, record high oil prices and geopolitical tensions have been given as some of the main reasons for the rise in gold prices.

The move weighed heavily on the dollar and boosted gold as it increased the metal’s appeal as an alternative asset to the US currency. The US interest rate cut also made gold, which is traded in dollars, cheaper for holders of other currencies.

“High oil prices usually benefit gold as they tend to lead to rising inflation. Gold, seen as a safe haven asset that holds its value in times of economic turmoil, is often bought by investors as a hedge against inflation. Investors will continue to look to gold as a hedge against inflation, particularly with oil prices set to continue higher,” said an economist associated with a leading national bank.

“With the increase in gold prices caused mainly by the weakening dollar and record rise in crude oil futures, gold is being perceived as a hedge against inflation, in other words as an anti-inflationary investment,” SABB Chief Economist Dr. John Sfakianakis told Arab News. “If gold prices continue to rise, that could impact consumption in Saudi Arabia,” he said. However, he added, gold consumption at the retail level in Saudi Arabia is picking up and improving in 2007 over 2006, which was a slow year due to the stock market crash compared to 2005.

Price rise affects retail consumption in general and gold in particular, he added. As the prices of gold globally are going up, this could be perceived in the local market as an opportunity to invest in the local market.

“It could still be perceived as a hedge against inflation in Saudi Arabia and globally. In the Kingdom, too, we have inflation and people could shift some of their assets into gold as an anti-inflationary measure,” Sfakianakis said, adding that along with gold, silver has also gained in prices in global markets.”

Saleh Bin Mahfooz, chairman of Jeddah-based Saleh Al-Kindi Bin Mahfooz Co. & Partnership for Trading, said: “The rise in oil prices, weakening dollar, and economic and political crises in different parts of the world are the main reasons for the steep rise in gold prices. As a result of the gold price rise, the Saudi gold market is slipping. It will affect 50 percent of gold sales. Estimated SR200 million daily gold sales in Saudi Arabia will be reduced to SR100 million.”

K.V. Mohan, managing director of Swana Jewelers in Riyadh, expects gold prices to go up further as a result of increasing demand. The World Gold Council and its Gold Fund are trying to push up prices,” he said.

Asked whether businessmen would support the move to increase prices, Mohan said: “We’ll not do that because it will affect business in our branches in Riyadh, Jeddah and Dammam,” he said. He maintained that the rising gold prices had not affected his business so far. According to him, increase in investment in gold and weak dollar were other reasons for rising gold prices. The WGC has predicted that the price will reach $1,000 per troy ounce.

“I was in Dubai last week and found that gold business there fell by 50 percent,” Mohan said. Many businessmen in the Kingdom import gold from Dubai. “Retail business in Dubai has fallen considerably,” he said.

Owners of gold and gold jewelry shops at the main gold souks at Kandara and Balad districts of Jeddah said the steep rise in gold prices was like rubbing salt into their wounds. “Our losses are mounting. We have not been able to do even 40 percent of our business during this Ramadan compared to last year. We are worried and concerned over the future of our business,” said Abdul Aziz Marzouki, a gold trader at Kandara gold souk. “How do you expect the average Saudi or expatriate family to buy gold or jewelry when prices are hitting the roof,” he asked.



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