Few takers for gold jewellery in Gulf countries

March 03, 2009

Commodity Online
DUBAI: Even as the world is going gaga over the soaring prices of gold and its new status as the safest haven on earth for investors, Dubai, one of the top markets for gold jewellery, is witnessing a strange phenomenon — a fall in sales.

This is something unheard of in this regions of the world. Because, in Dubai tourists shop for gold  like mad. But, year 2009 has not been kind to the gold traders in Dubai. They are witnessing a huge fall in sales and they are forced to cut prices. Even as experts say gold is recession-proof, Dubai’s traders are now feeling the heat to find buyers.

Worried over the lackluster sale, Gulf gold traders are now offering price cuts to lure customers.

So, bargaining has become common in Dubai’s jewellery shops now. Gold reached $1,000 per ounce last month for the first time in almost a year as investors turned to a traditional safe haven in volatile times.

In jewelelry stores, prices have risen by up to 25 per cent since the beginning of the year due to the soaring cost of gold. Coupled with the international recession battering tourists, this has led to a 50 per cent drop in sales in the year to date, compared with the corresponding period last year.

December was still good, but sales in January were down a lot. The number of tourists is unchanged, but their buying power is down.

Damas recently opened nine new stores in Dubai Mall, one of the world’s largest shopping centres, but has shelved plans for around six store openings in the UAE, in response to reduced demand.

In Abu Dhabi, the volume of gold jewellery sales fell by 70 per cent in January.

According to the World Gold Council, global demand for gold assets rose by 29 per cent last year to $102bn. While equity markets around the world lost an estimated $14 trillion in value, investment demand for gold, which includes exchange traded funds (ETFs) and bars and coins, rose 64 per cent. Over the year as a whole, the gold price averaged $872, up 25 per cent from $695 in 2007.

Demand for gold jewellery in the Middle East fell seven per cent in the fourth quarter of last year, but was largely offset by a 139 per cent surge in retail investment, which excludes ETFs and similar products.

The rise in investment demand for gold as an asset class was widespread across the region, with growth of 300 per cent in Saudi Arabia, 67 per cent in Egypt, 38 per cent in the UAE and two per cent in other Gulf countries. The surge in Saudi Arabian investment offset an 11 per cent fall in jewellery sales in the quarter in the Kingdom.

While current market conditions have impacted consumer spending on jewellery, purchasers in many of the key gold markets understand gold’s intrinsic investment value and continue to buy.

Experts say gold prices may begin to slide towards the end of the year, when all the negative data has been priced into markets, prompting them to stabilise, but not recover.

Some of the experts expect gold to pull back slightly to $930 per ounce in the first half of the year, only to bounce back and break through the $1,000 barrier once again later in the year.

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