JEDDAH: The idea has become a common practice, whether you’re a savvy investor or merely a consumer increasingly having a tough time stretching the riyal to make ends meet, that as a result of the global financial crisis purchasing gold during times of economic downturn has proven to be a safe haven investment.
Gold prices have again risen above $900 an ounce since October after hitting an all time high of $1,030.80 an ounce almost a year ago. The latest reports show the prices are hovering around the $900 level and have dropped only slightly at the end of yesterday’s trading to $894.38. But while gold prices have been fluctuating and tending upward, analysts say we may have yet to see the peak in gold prices considering the global economic downturn. Investment bank Goldman Sachs raised its forecast recently for the price of gold to push past $1,000 an ounce over the next few months based on investor concerns and rising demand as a dependable means of investment.
“The gold price rally has been driven by surging demand for gold (on a global-scale) in all forms: Physical gold exchange-traded funds (ETFs) and futures contracts as investors seek a safe store of value amid the financial distress and inflation risks,” the company said in a report while also confirming that strong relationship between the US dollar and gold prices and the exchange rate of the dollar against other currencies has begun to deteriorate.
In addition, Merrill Lynch revealed last month that some of its most prominent clients are so concerned about the current financial climate and signs of potential instability around the world that they have been insisting on purchasing gold bars, shunning derivatives or paper currencies. The firm also predicted that gold would soon surpass its all-time record and would hit $1,150 by June and argued that gold would be the best investment option at this time as the deflation sets in and further rocks the economic system. Gold would serve as a safe haven but if massive monetary stimulus gains momentum offsetting inflationary prices again it will also come into its own as a store of value.
John Sfakianakis, chief economist at Saudi British Bank, said he believes the reason many Saudi consumers are not purchasing gold is that Saudi consumers are treating gold as a mere trading item instead of a means of direct investment.
“I think it has to do a lot with the local economy, which has not seen the same problems stemming from the global financial crisis as seen in the US, Europe and Asia,” said Sfakianakis.
Gold dealers in Jeddah say sales of the precious metal have been dropping over the last few weeks as, it seems, Saudi consumers have dropped gold from their shopping lists for the moment. To attract buyers, many gold dealers have launched promotions.
“We are currently offering discount sales of between 40 and 60 percent off on some of our gold items because sales have slowed since prices began to steadily rise early last month,” said Abdulmohsen, a salesmen in Jeddah’s gold market in Al-Safa district. “By offering the sales promotions we are trying to convince the shoppers that the discounts will make up for the recent price increases.”
Meanwhile, rising gold prices have given a boost to the sale of costume jewelry. “Due to the high prices, we are keeping the gold we already have as valuables and purchasing imitation gold jewelry for parties and other events,” said Maha Ghassan, 27.
