LONDON: Gold has a history as a hedge against inflation, or more precisely, inflationary expectations, but what is not often considered is its role in a deflationary environment.
Since the United States Treasury closed the gold window in August 1971, the world's major economies have been almost continuously in an inflationary environment.
The year-on-year change in the consumer price index (CPI) in the US has been negative in just eight months since August 1971 and all eight of these were in one consecutive period from March to October 2009. In Germany, just 12 months fit the criterion, of which eleven were in 1986-1987.
Now, however, recent figures from the US and China, plus persistent problems in Europe and commercial banks' reluctance to lend, have rekindled fears of an imminent period of deflation.
There has been little hard evidence of gathering deflationary forces. However, the stresses in the banking sector and gold's historical performance during deflationary phases add weight to the argument that any deflationary fears should underpin gold prices.
Although it may seem counter-intuitive, gold can be as effective a hedge against deflation as against inflation; in fact gold's purchasing power is more likely to increase in deflationary periods than during inflationary eras.
Historical precedents suggest that gold's worth is powerful during deflationary periods.
The most recent deflationary period in the US was 1929-1933 as the depression took hold.
In 1931, Britain came off the gold bullion standard and effectively devalued sterling; then, perhaps somewhat reluctantly, in 1933 the US left the gold standard when President Roosevelt severed the dollar:gold link and banned domestic gold hoarding and gold exports.
Later that year, Roosevelt tried to nudge the gold price higher in the hope that rising gold would dispel depressionary forces. An increase in the dollar price of gold was, in an era when the gold standard had been prevalent, a de facto devaluation of the dollar.
Gold historian and analyst Timothy Green notes in his book "The World of Gold" that the "precise each day was less important than the encouragement of a general upward trend," but also that the move was too gradual and failed to lift the US economy out of depression.
Roosevelt then fixed the dollar-gold price at $35 in 1934 (an effective dollar devaluation of 40 percent) under the newly implemented Gold Reserve Act and the new gold exchange standard was established in the US, lasting until 1968 when a two-tier market was implemented, prior to the final severance of the dollar:gold link in 1971.
While gold's role as a medium of exchange may have proved disappointing to Roosevelt in terms of its impact on depressionary forces, gold's purchasing power increased substantially during this period of deflation, as it had in previous deflationary eras.
"The Golden Constant", written by Roy Jastram over 30 years ago and recently re-released including fresh material by economist Jill Leyland, studies gold over a series of inflationary and deflationary periods, going as far back to the 17th century in England and the 19th century in America.
In England, over the past four centuries, gold lost its purchasing power in every period of inflation; by anything from 21 percent (in both 1675-1695 and 1752-1776) to 67 percent (1897-1920).
The story is similar for four periods out of five in the US, from 6 percent (1861-1864) to 70 percent (1897-1920).
The outlier here is the period of 1951-1976 when gold's purchasing power did increase in the US, by 80 percent as the price corrected after its sustained period pegged to $35/ounce.
In each of the four deflationary periods since the 17th century in England, gold has increased its purchasing power, by between 42 percent (1658-1669) and 251 percent (1920-1933).
In the US there have been three recorded deflationary periods — and gold increased its purchasing power in each of them — by between 44 percent (1929-1933) and 100 percent (1814-1830).
It could understandably be argued that these results stem from periods when the gold price was fixed, but Leyland notes that while a fixed price could help in the short term, there is a mass of economic experience showing that a price cannot remain fixed in the face of overwhelming fundamental forces.
Roosevelt having to free gold in 1933 (if only temporarily), and the subsequent changes in 1968 and 1971, are cases in point.
More recently, and in a different sphere, one can point also to the failure of the International Tin Council, in the mid-1980s, to sustain the efforts to maintain tin within a price bands an exercise that ultimately caused ructions in the London Metal Exchange and elsewhere.
In the short term, participants are concerned that any or all of the US, Europe or China could be sailing into deflationary headwinds.
History suggests that to sell gold ahead of such a development would be counter to the likely price outlook, as well raising investment risk profile rather than reducing it, especially as a deflationary environment would be likely to undermine equities, while keeping bond yields low.
Continued flattening in the yield curve suggests that the market is still looking for QE3. Such a development could help to dispel deflationary fears, but in mid-2012 they are still hovering in the background.
Finally, the fact that gold is under consideration at the Basel Committee for Bank Supervision for elevation to Tier 1 Asset status for commercial banks is informative enough in its own right, since it flags the continued stresses in the financial system.
Although the opportunity cost of holding gold would remain positive in a deflationary environment, the reduction of risk would be likely to outweigh this final consideration.
— Rhona O'Connell is a Reuters GFMS market analyst.
The views expressed are her own.
Gold as a hedge against deflation
Gold as a hedge against deflation
EV maker Lucid’s quarterly deliveries rise but miss estimates
- Lucid delivered 3,309 vehicles in the quarter ended June 30
LONDON: Electric automaker Lucid on Wednesday reported a 38 percent rise in second-quarter deliveries, which, however, missed Wall Street expectations amid economic uncertainty.
Demand for Lucid’s pricier luxury EVs have been softer as consumers, pressured by high interest rates, shift toward cheaper hybrid and gasoline-powered cars.
Lucid delivered 3,309 vehicles in the quarter ended June 30, compared with estimates of 3,611 vehicles, according to seven analysts polled by Visible Alpha. It had delivered 2,394 vehicles in the same period last year.
Saudi Arabia-backed Lucid produced 3,863 vehicles in the quarter, missing estimates of 4,305 units, but above the 2,110 vehicles made a year ago.
The company stuck to its annual production target in May, allaying investor worries about manufacturing at a time when several automakers pulled their forecasts due to an uncertain outlook.
US President Donald Trump’s tariff policy has led to a rise in vehicle prices as manufacturers struggle with high material costs, forcing them to reorganize supply chains and produce domestically.
Lucid’s interim CEO, Marc Winterhoff, had said in May that the company was expecting a rise of 8 percent to 15 percent in overall costs due to new tariffs.
The company’s fortunes rest heavily on the success of its newly launched Gravity SUV and the upcoming mid-size car, which targets a $50,000 price point, as it looks to expand its vehicle line and take a larger share of the market.
Deliveries at EV maker Tesla dropped 13.5 percent in the second quarter, dragged down by CEO Elon Musk’s right-wing political stances and an aging vehicle line-up that has turned off some buyers.
Saudi hotel occupancy rises to 63% in Q1 2025
- Occupancy rate for serviced apartments and other hospitality facilities fell to 50.7%
- Average daily room rate in hotels stood at SR477
JEDDAH: Saudi Arabia’s hotel occupancy rate rose to 63 percent in the first quarter of 2025, up from 60.9 percent a year earlier, driven by seasonal events, pilgrimage traffic, and growing leisure tourism.
The occupancy rate for serviced apartments and other hospitality facilities fell to 50.7 percent during the same period, marking a decline of 3.8 percentage points compared to the first quarter of 2024, according to recent data from the General Authority for Statistics.
GASTAT’s tourism establishments statistics also showed that the average daily room rate in hotels stood at SR477 ($127.2), reflecting a year-on-year decrease of 3.4 percent. Meanwhile, the average daily rate in serviced apartments and other hospitality facilities increased by 7.2 percent to SR209 during the same period.
The Kingdom has set ambitious tourism targets under its Vision 2030 agenda, aiming to attract 150 million visitors annually by the end of the decade.
Tourism is central to the nation’s broader strategy to diversify its economy beyond oil and is positioned as a vital contributor to the gross domestic product. To drive this transformation, Saudi Arabia plans to invest over $1 trillion in new attractions and infrastructure projects, including the Red Sea initiative and NEOM, a $500 billion megacity.
According to GASTAT, the average length of stay for hotel guests was approximately 4.1 nights during the first quarter of 2025, consistent with the same period in 2024.
“On the other hand, the average length of stay for guests in serviced apartments and other hospitality facilities was approximately 2.1 nights during Q1 of 2025, reflecting a decrease of 4.5 percent compared to the corresponding quarter of 2024, which was 2.2 nights,” the analysis added.
Regarding employment in the tourism sector, GASTAT reported notable growth, with the total number of workers in tourism-related activities reaching 983,253 during the first quarter of 2025, up 4.1 percent from the same period last year.
“The number of Saudi employees reached 243,369, with a participation rate of 24.8 percent. Meanwhile, the number of non-Saudi employees reached 739,884, representing a participation rate of 75.2 percent of the total employees in tourism activities,” the report said.
The study further indicated that, in terms of gender distribution, male employees in tourism activities totaled 853,852, accounting for 86.8 percent of the workforce, while female employees numbered 129,401, representing 13.2 percent during the first quarter of 2025.
It also revealed that workers in the tourism sector constituted 5.4 percent of total national employment, marking a decline of 0.3 percentage points compared to the first quarter of 2024. Within the private sector, tourism accounted for 8.1 percent of jobs, a decrease of 0.6 percentage points from 8.7 percent in the same quarter of the previous year.
Highlighting its calculation methodology, GASTAT said the tourism establishments statistics for Q1 2025 are compiled from multiple sources to provide comprehensive insights into tourism activities in Saudi Arabia. These sources include administrative records, statistical surveys, and secondary data.
The Kingdom’s tourism sector continued to demonstrate strong performance in the first quarter of 2025, reflecting the country’s accelerating efforts under its Vision 2030 agenda to diversify the economy and reduce reliance on oil revenues.
As the nation expands its hospitality infrastructure and boosts its global appeal, recent data reveals promising trends in visitor spending, hotel occupancy, and employment within the tourism industry.
In the first three months of 2025, international tourists spent SR49.37 billion in the Kingdom, a 10 percent increase compared to the same period last year, according to figures released by the Saudi Central Bank, also known as SAMA.
This rise contributed to boosting the travel account surplus to SR26.78 billion, marking an 11.7 percent year-on-year increase and underscoring tourism’s growing contribution to the non-oil economy.
Saudi Arabia’s hotel sector recorded a solid performance in the first quarter of 2025, supported by a steady rise in both domestic and international tourism, according to the latest report by global real estate consultancy JLL.
The report showed that the Kingdom welcomed approximately 21.6 million international tourists in the first nine months of 2024, while domestic travel surged to 63.9 million, with leisure being the primary motivator for trips.
It added that religious pilgrimage continued to drive international arrivals, reinforcing the country’s unique position as a spiritual destination.
The JLL study said that while the nationwide hotel market saw growth in key performance metrics, such as a 10.8 percent increase in average daily rates and a 1.3 percentage point rise in occupancy, performance diverged across cities.
JLL noted that Makkah and Madinah posted robust gains, while Riyadh experienced declines in both occupancy and room rates. Jeddah, meanwhile, showed mixed results.
Closing Bell: TASI closes the week in green at 11,244, climbing 1.03%
- MSCI Tadawul Index increased 1.37 percent to close at 1,443.46
- Parallel market Nomu lost 0.32 percent to end at 27,287.50 points
RIYADH: Saudi Arabia’s Tadawul All Share Index concluded Thursday’s trading session at 11,244.45 points, marking an increase of 114.81 points or 1.03 percent.
The total trading turnover of the benchmark index was SR5.625 billion ($1.5 billion), as 139 of the listed stocks advanced, while 110 retreated.
The MSCI Tadawul Index also increased by 19.52 points, or 1.37 percent, to close at 1,443.46.
The Kingdom’s parallel market Nomu reported a decrease, losing 88.34 points, or 0.32 percent, to close at 27,287.50 points. This comes as 37 of the listed stocks advanced while 38 retreated.
The index’s top performer, Fawaz Abdulaziz Alhokair Co., saw a 9.85 percent increase in its share price to close at SR29.
Other top performers included Saudi Ceramic Co., which saw a 6.26 percent increase to reach SR31.90, while Halwani Bros. Co.’s share price rose by 5.55 percent to SR44.86.
Middle East Healthcare Co. also recorded a positive trajectory, with share prices rising 5.09 percent to reach SR57.80.
Al-Rajhi Co. for Cooperative Insurance was TASI’s worst performer, with the company’s share price falling by 2.91 percent to SR123.30.
Saudi Industrial Export Co. followed with a 2.51 percent drop to SR2.33. Ades Holding Co. also saw a notable decline of 2.32 percent to settle at SR13.06.
Americana Restaurants International PLC and Naseej International Trading Co. were among the top five poorest performers, with shares dropping by 2.08 percent to settle at SR2.35 and 1.96 percent to sit at SR100, respectively.
On the announcement front, Riyad Bank announced its intention to issue tier 2 trust certificates denominated in US dollars under its updated international trust certificate issuance program, the bank said on Thursday.
According to the bank’s statement on Tadawul, the issuance — approved by its board on August 9 — is expected to be carried out through a special purpose vehicle and offered to eligible investors both in Saudi Arabia and internationally.
The offering is part of the bank’s broader capital-raising initiative aimed at general banking purposes, and its size and terms will be determined based on prevailing market conditions at the time of issuance.
The Saudi lender has appointed Standard Chartered Bank, HSBC Bank, Merrill Lynch International, and J.P. Morgan Securities, as well as SMBC Group, Mizuho International, DBS Bank Ltd, and Riyad Capital as joint lead managers for the proposed offer.
The proposed issuance of trust certificates will proceed following approvals from relevant regulatory bodies and will comply with all applicable laws and regulations.
Riyad Bank’s share price traded 2.54 percent higher on Thursday to close at SR28.36.
Qatar, Kuwait, UAE see steady June PMI growth; Lebanon slows decline
- Kuwait’s PMI fell to 53.1 in June from 53.9 in May
- UAE’s PMI ticked up to 53.5 in June from 53.3 in May
RIYADH: Business activity across Middle Eastern economies showed mixed trends in June, with Qatar leading growth, Kuwait and the UAE holding steady, and Lebanon remaining in contraction despite easing declines, market trackers showed.
According to the latest Purchasing Managers’ Index data from S&P Global, Kuwait’s PMI fell to 53.1 in June from 53.9 in May — a three-month low but still well above the neutral 50 mark, signaling a solid improvement in business conditions in the country’s non-oil private sector.
In the UAE, the PMI ticked up to 53.5 in June from 53.3 in May, while Qatar’s figure for the non-energy private sector rose to 52 in June from 50.8 in May,
Lebanon’s PMI edged up to 49.2 in June from 48.9, remaining below the 50 threshold for a fourth consecutive month.
The broadly positive figures are in line with World Bank forecasts that Gulf Cooperation Council economic growth will accelerate to 3.2 percent in 2025 and 4.5 percent in 2026, driven by the easing of OPEC+ oil cuts and strong non-oil sector expansion.
Kuwait growing despite slowdown
Kuwait’s PMI rating, which still shows growth despite a deceleration, comes amid expectations of an economic rebound, with the International Monetary Fund and World Bank projecting Kuwait’s real gross domestic product growth at 1.9 percent and 3.3 percent, respectively, for 2025.
Andrew Harker, economics director at S&P Global Market Intelligence, said: “Sustained rises in workloads and increasing confidence for the year ahead have been good news for the Kuwaiti labor market, with companies looking to take on additional staff to keep on top of orders.
That said, he noted that even a record increase in employment in June failed to prevent a further buildup of outstanding business, suggesting the need for additional capacity improvements in the months ahead.
“All in all, the first half of 2025 has been a successful one for Kuwait’s non-oil private sector, and firms go into the second half of the year in good shape to continue expanding,” Harker added.
UAE PMI edges higher
Despite the UAE’s PMI figure inching up in June to 53.5 from 53.3 in the previous month, new business growth in the country slowed due to geopolitical tensions, faster output and stable inventories kept overall activity in expansion territory, according to newly released data from S&P Global.
The rise was attributed to firms ramping up efforts to clear backlogs, which boosted output growth and stabilized stock levels after May’s record decline.
Non-oil private sector firms in the country experienced softer demand toward the end of the second quarter, as heightened regional tensions led to more cautious client spending.
Geopolitical uncertainty also disrupted supply chains, though input cost pressures eased.
“The UAE non-oil sector showed signs of a minor setback in June due to the conflict between Israel and Iran. The impact was primarily felt on the demand side, as some businesses reported a slowdown in orders driven by heightened tensions,” said David Owen, senior economist at S&P Global Market Intelligence.
He explained that this led to a further slowdown in overall new business growth, which fell to its lowest level in almost four years.
“However, with firms instead able to turn their attention to addressing the substantial level of outstanding work — evidenced since early 2024 — the impact on overall business conditions was negligible,” Owen said.
The senior economist noted that input costs rose at their slowest pace in nearly two years, allowing businesses to offer price reductions to customers. With consumer inflation remaining subdued, the data suggests a recovery in sales growth is likely in the near future — provided regional tensions ease, he explained.
Qatar extends expansion
Qatar’s PMI rise of 1.2 points marked the strongest growth since March and the 18th consecutive month of expansion. The uptick was driven by higher output and employment, though declines in new orders, input stocks, and faster supplier delivery times slightly offset the overall improvement. The reading of 52 remained just below the long-term average of 52.2.
The latest data signaled a stronger overall improvement in business conditions in Qatar’s non-energy sector at the halfway point of 2025, supported by a sharp rise in employment and renewed growth in activity.
Employment rose at one of the fastest rates since the survey began eight years ago, partly reflecting efforts to manage a quicker buildup of backlogged work. Output expanded despite a slight decline in new business.
“Growth remained modest overall, however, as the PMI has not beaten its long-run average of 52.2 so far this year. This can mainly be attributed to intermittent and muted growth of output and new orders, with the non-energy sector not registering concurrent growth in these two indicators since December 2024,” said Trevor Balchin, economics director at S&P Global Market Intelligence.
“The overall strength of the headline PMI figure continues to be underpinned by rising employment, with companies seemingly undeterred by a lack of sustained demand growth. Ongoing hiring was corroborated by another rise in outstanding business in June, and at the fastest rate since last October,” he added.
Balchin also noted that wage growth accelerated in June, approaching the record set in January.
However, overall inflation remained moderate, as purchase price inflation eased to its lowest level in nearly a year, allowing companies to once again reduce the prices of their goods and services.
Lebanon contracts
Lebanon’s PMI signaled a slower pace of decline in private sector conditions as employment and inventory levels stabilized.
S&P data showed that Lebanon’s private sector remained in contraction at the end of the second quarter, though the pace of decline eased compared to May. Output fell more moderately despite weaker sales, while employment and inventory levels held steady. However, heightened regional tensions weighed on business confidence and pushed up purchasing costs.
“The escalation of the war between Iran and Israel resulted in weaker customer sales and client cancelations, leading to a drop in business activity,” said Fadi Osseiran, general manager of BLOMInvest BANK.
He noted that purchase prices incurred by companies had surged at the fastest pace in eight months, with these increases being passed on to clients. “What is unfortunate is the sharp drop in the Future Output Index, revealing pessimism at private sector companies regarding future outlook, as 53 percent of respondents expect activity levels to diminish in the upcoming 12 months,” Osseiran said.
Saudi Arabia’s POS spending climbs 24.4% to $3.6bn in final week of June
- Number of transactions rose by 8.6% to reach 219.9 million
- Spending on recreation and culture posted the highest weekly increase
RIYADH: Saudi Arabia’s point-of-sale transactions climbed to SR13.6 billion ($3.6 billion) in the week ending June 28, marking a 24.4 percent rise compared to the previous seven-day period, according to the latest official figures.
The point-of-sale transactions bulletin issued by the Saudi Central Bank showed that the number of transactions also rose by 8.6 percent to reach 219.9 million.
Spending on recreation and culture posted the highest weekly increase, surging 49.3 percent to reach SR294.7 million. The number of transactions in this category rose slightly to 2.26 million.
Clothing and footwear followed with a 44.2 percent surge in spending, totaling SR830.9 million. The number of transactions in this section rose 34.5 percent to 6.2 million.
Telecommunications came third, with a 38.7 percent increase in value to SR123.9 million and a rise in transactions to just over 2 million.
Spending on public utilities increased by 28.8 percent, reaching SR52.3 million through 690,000 transactions.
Gas stations registered SR963.5 million in transactions, up 18.4 percent from the prior week. Transaction volume climbed to 17.2 million.
Expenditures in the health sector reached SR840 million, an increase of 17.9 percent, while spending on transportation rose 18.7 percent to SR746 million. The number of transportation transactions hit 2.9 million.
Jewelry sales rose by 34.7 percent to reach SR352.7 million from 280,000 sales.
Education services recorded sales of SR 212.1 million, up 9.7 percent, with the number of transactions in the sector reached 118,000.
Sales at hotels reached SR212.5 million, a 28.3 percent weekly increase, while transactions advanced 26.4 percent to 680,000.
Spending on construction and building materials totaled SR328 million, representing a 7.9 percent boost from the previous week. The number of transactions stood at 1.7 million.
Among cities, Hail recorded the highest increase in POS transaction value, rising 41.5 percent to SR226.2 million across 4 million transactions.
Abha followed with a 37.6 percent rise in spending, totaling SR195.3 million from 3.48 million transactions.
Additional cities across the Kingdom contributed SR3.93 billion in POS sales, reflecting a 32.6 percent increase from the previous week.
Madinah posted SR516 million in transactions, up 27.7 percent, while Jeddah recorded SR1.93 billion, marking a 20.4 percent increase.
Makkah followed with SR471.7 million, up 20.2 percent from the prior week.
Riyadh remained the highest in overall value with SR4.68 billion in sales, a 19.7 percent weekly rise, and 70.3 million transactions.
Dammam registered SR673.3 million, increasing 18.1 percent.
Khobar and Buraidah posted SR385.7 million and SR327.7 million, respectively, while Tabuk reported SR278.5 million in POS spending.
