Dubai: The manic buying of gold jewellery at local shops since April 12 is now pushing up the premium retailers need to pay to ensure they have enough stock coming in on a daily basis.
Premiums have touched $5 an ounce in the wholesale trade and even bullion banks have raised theirs to $2-$3 an ounce for deliveries.
“Since the afternoon of April 12 gold retail sales shot up by nearly three times over the next seven days and this represents the best phase for Dubai’s gold trade in the last 12 years,” said Cyriac Varghese, general manager at Sky Jewellery. “But it has also led to pressure for retailers on the inventory side and there is a bullion shortage – our instructions are to snap up any supply so that stocks are constantly replenished.
“The last thing any retailer wants to see is get caught with insufficient stock at his shops – if it means paying a steep premium then it will be paid.”
The sharp drop in gold prices — from $1,572 to as low as $1,332 an ounce during the period - did catch the local trade off-balance; since the start of the year there have been a few but limited to certain ranges. In comparison, last week’s decline ranked as an outright retreat from the highs of the last three years. (It was in September 2011 that gold touched an all-time high of $1,921 an ounce.)
Dubai’s gold trade is scrambling to meet the challenges. “[While] large-scale operators are using services such as spot, futures, derivatives, etc., at one end of the scale, retailers and gold shops are still conducting the majority of their business in the traditional way — daily buys mainly driven by physical transactions,” said Tarek El Mdaka, managing director at Kaloti Jewellery Group. “This explained the hike of premiums on physical gold bars and coins last week.”
But Sunny Chittilappilly, chairman of Dubai Gold and Jewellery Group, believes the street-level trade has what it takes to take the current phase in its stride. “Experienced jewellers will be using many hedging tools and there may not be room for any drastic change in the way they place orders or stock inventory,” he said.
“Rapid downswing and relatively lower retail prices will have its implication on stock valuation… which will not be taken into account from a retail trade perspective.
“Jewelers will be utmost cautious in fixing and purchasing stock in a volatile market which will shield them from booking huge loss in a short span of time. Once the trend is observed by traders, they would make wise buying and selling decisions which will avoid larger implications on the bottom-line.”
Varghese echoes this view: “Retailers buying gold against sales proceeds should not be affected much. The problem could arise at the end of the year when the balance-sheet is made. At the end of last year, our gold holdings were valued at $1,640 an ounce — now if the drop persists through the rest of this year, it will tell on the value of the stock we hold. That could mean an impact on the credit facilities with banks.”
But Dubai’s gold trade is not thinking that far ahead, they are reaping the windfall in sales that have come their way since April 12.
