Increased use of gold in making jewellery in growing markets such as India and China has pushed up the yellow metal's prices, according to a study by Dubai Chamber of Commerce and Industry study based on the Dubai Multi-Commodities Centre (DMCC).
Besides, the demand for gold as reserve and hedge against inflation and investment and speculative demand for gold with the intention to profit from the continuing uptrend also contribute to the uptrend in gold prices, the study said.
The investment demand is not the only reason for the price rise of gold, higher demand for converting it into jewellery in countries like India and China, as gold plays an important role in their cultures, also led to the rise in gold prices, the report said.
The World Gold Council (WGC) estimates that jewellery and investment demand from these Asian countries represented about 40 per cent of total global demand in 2010, and that demand from India is expected to grow overtime.
However, history has shown that asset prices generally don't keep rising indefinitely. Corrections, even large ones are quite normal as was seen in the early 1980s.
While the price of gold may still have a long way to rise, its recent history has shown some difficulty in breaking through to higher levels. This could indicate that in the future the gold price may be more volatile, with more frequent and larger corrections.
The report states the yellow metal traded through Dubai is valued at USD 41.3 billion in 2010, showing an increase of about 18 per cent from 2009.
The study finds out that the Dubai Gold and Commodities Exchange (DGCX) gold trading has experienced healthy volumes as of May 2011, when gold contracts increased by 39 per cent year-on-year to reach 60,638.
According to the DGCX report, gold contracts in April increased by 49 percent year-on-year to reach about 46,295 while in March they grew 51 percent year-on-year.
Also, it added that price volatility of this magnitude is an important challenge for UAE gold investors and traders who need to make future business plans.
In the UAE, gold has an important place for use in jewellery, in import and export trade and as an investment commodity.