DGCX set to ride high on booming gold market

One of the most important things in capital markets is timing, and for this factor luck is often as important as good judgment. And whether by good luck or good judgment the launch of the Dubai Gold and Commodities Exchange was well timed.

For in the past three months gold prices have shifted almost $100 an ounce, and only last week an attempted sell-off by funds collapsed at the $535 an ounce mark, while prices have been as high as $575 an ounce in recent weeks.

$650 gold coming

Many chartists now say that $600 and $650 an ounce is only a matter of time, and probably not very long at that. For the gold charts have left a steady rising phase behind, and now look at the base of what could turn out to be a parabolic spike, similar to that seen on the UAE stock market last year.

Is it not very surprising then that 70 members are now actively trading on the DGCX. Trading futures contracts in a rapidly rising market can be hugely profitable, and this is not a very complicated market to understand.

The physical trade for gold in Dubai is around 1.7 tonnes per day but market analysts expect the potential volume for futures contracts to be between 10 to 50 times greater than this trade. A lively market is therefore in prospect.

Gold is really catching the eye of the international investment community for two main reasons: as a hedge against inflation and as a safe haven for investors if capital markets turn down.

US inflation up

The US inflation figures at the end of last week came in substantially higher than market consensus, and any consumer in the UAE can tell that inflation is much higher than the official figures show.

One explanation is that there is too much liquidity in the global financial system because interest rates have been too low for too long. Too much money pursuing too few goods is a text book rationale for inflation. We can also see that refinery capacity for oil products is limited, and here limited supply leads to price inflation.

What about gold as a safe haven investment? Well, ask yourself if Iran decides to disrupt oil supplies next month, what will happen to global financial markets, and what will happen to the price of gold?

The truth is that there is a very compelling investment case for gold at this moment in time, and until the world economy has divested itself of excess money and geopolitics become more secure that is not about to change. In this environment the DGCX is the right exchange, in the right place, at the right time.