By: Economic Middle east

Gold prices saw a slight retreat on Wednesday after reaching a record peak the previous day, influenced by a modest appreciation in the U.S. dollar and profit-taking among investors. This decline followed bullion touching an unprecedented high, driven by market anticipation of a potential Federal Reserve interest rate cut expected to be announced later in the day. This dynamic highlights the sensitive interplay between monetary policy signals from the Fed and gold’s safe-haven appeal.

Mixed economic signals

In Dubai, the benchmark for gold pricing in the Middle East, 24-carat gold decreased by AED0.82 to AED443.50 per gram. The slightly lower-grade 22-carat and 21-carat varieties saw reductions of AED0.75 and AED0.72, settling at AED406.54 and AED388.06 respectively. Meanwhile, 18-carat gold dropped AED0.62, reaching AED332.62. These adjustments align with global trends and reflect ongoing shifts in currency valuations and investor sentiment.

Globally, spot gold was down by 0.19 percent at $3,681.43 per ounce, recalibrating after reaching $3,702.95 per ounce on Tuesday, a historic peak. U.S. gold futures for December delivery edged lower by 0.2 percent to $3,717.80 per ounce. Recent dollar movements, with the currency up 0.1 percent after hitting a two-month low the previous day, contributed to tempering gold rates, as gold and the dollar often exhibit an inverse relationship.

The U.S. economic backdrop presents mixed signals for gold.

Data released on Tuesday indicated U.S. retail sales exceeded expectations in August, reflecting resilience in consumer spending. However, concerns about a weakening labor market and the inflationary impact of tariffs pose risks that could undermine future spending momentum. This uncertainty underpins the Federal Reserve’s likely decision to lower interest rates by 0.25 percentage points to support the economy.

Calls for aggressive rate cuts

Lower interest rates typically reduce the opportunity cost of holding gold, which does not yield interest, thereby enhancing its attractiveness during periods of monetary easing. This sentiment has been echoed by former President Donald Trump, who urged the Fed to enact a “bigger” rate cut to stimulate economic growth. Market participants will closely monitor remarks from Fed Chair Jerome Powell following the rate decision for insights into the future trajectory of monetary policy.

Investment demand continues to significantly influence gold’s price trajectory. The SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, reported an increase in its holdings to 979.95 metric tons on Tuesday, up from 976.80 tons the previous day. This accumulation reflects underlying investor confidence in gold as a hedge against economic volatility and currency fluctuations.

In the broader precious metals complex, spot silver prices fell by 1.39 percent to $41.91 per ounce, while platinum inched up by 0.07 percent to $1,393.00 per ounce, and palladium rose slightly by 0.08 percent to $1,180.00 per ounce.

Inflation pressures prompt investors to seek gold

Gold’s behavior in recent months has been shaped by a confluence of factors including geopolitical uncertainties, inflationary pressures, and shifting central bank policies globally. Persistent inflation, especially in developed economies, has driven investors toward gold as a store of value. The metal’s recent rally to record highs underscores this trend, amplified by expectations that the Fed, and other central banks, are likely to continue easing monetary conditions to support growth.

Emerging economic risks, such as geopolitical tensions and the potential for slower global growth, further bolster gold demand. According to the World Gold Council’s mid-year 2025 report, central banks and institutional investors have increased gold reserves as a diversification strategy amidst market volatility (World Gold Council, 2025 report). This sustained institutional appetite helps explain the steady inflow into gold ETFs like SPDR.

Dubai and Middle East gold market

Dubai continues to be a crucial hub for gold trading and pricing, serving not only the Middle East but also markets in Asia and beyond. Dubai’s gold market, one of the largest globally, benefits from tax advantages, refined logistics, and a strong cultural affinity for gold jewelry and investment. The Dubai Multi Commodities Centre (DMCC) regularly reports robust gold trading volumes that make it a key indicator of regional demand trends.

Recent price adjustments in Dubai reflect both the international gold market’s movements and local demand factors. The slight declines in various carats hint at profit-taking or cautious trading ahead of the Fed announcement but also potentially reflect fluctuating demand from individual and institutional buyers. In addition, the regional currency dynamics linked to the U.S. dollar impact prices. The UAE Dirham’s peg to the dollar means that any dollar strength can translate directly into higher regional gold prices, and vice versa.

Furthermore, gold jewelers and investors in Dubai are also watching trends in import regulations and tax policies, which can affect local demand and pricing dynamics. The recent easing of travel and tourism restrictions in the UAE might stimulate luxury and gold jewelry sales during upcoming festive seasons, potentially supporting prices.

Gold as portfolio diversifier amid global uncertainty

Gold’s role as a hedge against inflation and currency risks remains vital as inflation rates, while showing signs of easing, continue to be stubbornly high in many economies. Central banks globally are grappling with the balance between controlling inflation and supporting growth, leading to unpredictable policy developments that create volatility-friendly conditions for gold.

Investors often view gold as a “safe haven” during periods of market stress, including geopolitical conflicts, currency devaluations, and economic downturns. The 2025 market environment includes ongoing tensions in multiple regions, trade policy uncertainties, and changing expectations about the future path of U.S. interest rates and inflation, all contributing to a supportive backdrop for gold.