ECONOMY-UAE: Asian Buyers Keep Gold Glittering

By IPS Correspondents Reprint | | Print |

Meena Janardhan

DUBAI, Jun 20 2006 (IPS) - Despite gold prices climbing to record highs in recent months, sales of the yellow metal in this global trading hub are unlikely to be adversely affected for long because of sheer demand from Asian buyers.

The normally bustling streets of Dubai’s world-famous Gold Souq (market) are not so busy nowadays, though customers do trickle in hoping for bargains. Shopkeepers say that there has been a 30 percent drop in sales ever since prices skyrocketed recently – reaching nearly 80 dirhams (around 22 US dollars) per gram about two months ago.

‘‘Although gold sales grew last year, there has been a 10 percent drop in sales in the first two months of 2006,” said Tawhid Abdullah, chairman of the Dubai Gold and Jewellery Group, in a statement. ‘‘That is because there was a 10 percent drop in the sales from the lower end of the Asian buyers, who account for 50 percent of the total gold purchased in Dubai. Asians are also more sensitive when it comes to gold prices.”

Gold and silver jewellery is the third biggest contributor to the economy of the United Arab Emirates (UAE), after construction and petroleum.

Due to the rise in gold prices, consumption in the UAE in terms of tonnage declined by 17 percent from 33 tonnes in the first quarter of 2005 to 28 tonnes during the corresponding period of 2006. In Saudi Arabia, sales were 28 tonnes (down by 42 percent).

‘‘Though prices (per gram) have dropped to around 65 dirhams (about 18 dollars) now, sales are lower than before. Customers just walk in, get certain pieces weighed and then decide against buying when they hear the price,” says Thomas Gomez, a salesman at a leading jewellery shop in the Gold Souq.

Consumer demand was also affected at the annual Dubai Shopping Festival, a key event for gold sales, which was scaled down following the death of the Dubai’s ruler, Sheikh Maktoum bin Rashid Al Maktoum, in January.

Analysts attribute the increase in gold prices to high crude oil prices, geopolitical tensions, inflation, and the increasing use of gold as hedge funds against inflation and innovations in products, and markets for trading and investment.

‘‘I don’t even enter a gold shop nowadays,” said Smita Singh, an Indian housewife, ‘‘When I came to Sharjah (one of the seven Emirates) six years ago, prices were around 25 dirhams (about 7 US dollars)! I used to buy gold almost every month either for myself or as gifts. Now I can’t even think of buying for myself, leave alone for others.”

‘’There are some customers who are now selling their old jewellery to cash in on the high prices,” said Gomez. ‘‘And there are some who buy thinking that it’s better to buy now rather than risk higher prices later.”

‘‘That is true,” Smita concurred, ‘‘One of my friends just bought 50 grams of gold jewellery saying it will be a real investment now as prices will never fall and she can sell it later if she needs and make a profit.”

A survey conducted by Sarwat Abdul Razzak, director of Dubai’s ARY gold and jewellery firm, has shown that shoppers in the UAE spend, on average, 30 times more on gold than in the rest of the world. South Asians constitute an overwhelming 70 percent of buyers, followed by East Asians with 22 percent. Arab and European consumers make up four percent each.

The survey, which covered 3,200 people across the country, showed that on an average a person in the UAE bought 30 grams of gold annually compared to the global average of less than one gram and that about 350 outlets in the Gold Souq display about 20 tonnes of jewellery at any given time.

Some five million Indians work in the Middle East countries and each time they fly home they are certain to carry along some gold, either as family investment or as jewellery that will contribute to a dowry.

With increasing affluence and lowering of customs duties, Indians have been flying to Dubai in increasing numbers just to buy gold jewellery in a market where caratage is assured.

Indeed, Gold Souq has many outlets owned and run by Indians and also patronised by the sizeable expatriate Indian community in UAE and the Middle East.

A few jewellery makers, however, said that they were facing closure. ‘‘Customers are not buying as much as before – at the same time our overheads and other costs have risen sharply in the past couple of years. If this situation continues, I may have to shut down and send more employees home. I have already sent home a few,” said Nitin Shah, a dealer from India’s western Gujarat.

Others were more optimistic. ‘‘There are people who wait and watch and then buy according to prices and there are those who have to buy depending on the occasion and irrespective of the price,” said Yousuf Ismail, a Sharjah gold dealer. ‘‘Also, while gold jewellery sales are falling, sales of gold bars have been steady. Gold bars are usually bought as a form of investment irrespective of the price as they feel even at high prices gold is a good buy.”

According to the Gold Fields Mines Survey (GFMS), the British industry watchdog, consumption of gold continues to rise in both global and regional markets despite high prices. Dubai imported 525 tonnes of bullion worth 10.5 billion dollars last year, which is projected to double in five years.

‘‘Buy gold and jewellery now. This is not a campaign punch line. It is real advice to investors and consumers,” Firoz G. Merchant, chairman of Pure Gold, one of the region’s leading gold and jewellery companies, told the ‘Gulf News’, an English language daily.

‘‘People are losing confidence in currencies and the stock markets. Investors have begun to move towards the metals, especially gold. If you buy gold you will not lose anything at the end of the day,” he said.