Dubai The global financial order of things may have changed out of sight since Lehman Brothers caught the meltdown virus. But if there's been one constant in all the dips and turns the world economy has experienced since, it's the unwavering investment interest in gold.
That's as far as the constants go. When it comes to prices, gold's trajectory seems set at two levels — high and higher. No sooner does it breach one record-setting level, the momentum pushes it even further up. Now that the $1,300 (Dh4,781) an ounce level has been breached, the informed comment is that this will continue well up to — and past — $1,500.
How's all of this activity over gold playing out in Dubai's precious metals marketplace? Yes, the retail side of the gold jewellery business seems inert in comparison to years past, but the metal is finding precious support from the local financial services industry.
Gulf News spoke to Tarek Al Mdaka, managing director of Kaloti Jewellery Group, a bullion trading firm headquartered in DMCC, on how the trend is shaping up.
Gulf News: There seems to be a clear indication of institutional buying interest for gold from within the local market. In your opinion, is this more likely to be the exception?
Tarek Al Mdaka: We need to look at two aspects here. We don't know whether a particular deal for physical gold belongs to an institution or stems from it placing orders on behalf of its clients. In the wider context of the gold trade, these distinctions do not matter.
We are on the verge of closing an agreement with one of the local investment banks, which is keen on buying gold for their own portfolio and for its customers. One of the products they want to market on the investment side is gold, and done with the metal actually sitting in a vault.
What is unprecedented is that the local bullion market is being used to place orders for physical delivery. The custom has been for local financial institutions to place bulk orders in the London, Geneva or Zurich commodity market.
Why do you think such order placements are happening now?
Because there are certain cost benefits a local institution can make use of by sourcing locally, especially at the price levels gold is enjoying now.
If they want to place relatively smaller orders of, say 10, 20 or 30 kilos, it's too expensive to move it from Zurich or London. If we are talking of orders sizes for 500 kilos or one tonne, then those markets can offer more competitive terms.
With the high gold prices, there's always going to be excess material. It's better here, because we have sourcing from all over and the cost of operations being in Dubai is lower. These benefits you can work into the deal.
Is it just the local institutions buying from here?
The global bullion banks with offices here are also active when it comes to sourcing. We are talking about a few tonnes on a monthly basis.
Is that a good thing in the wider market context, or just confined to the bullion trading community?
Principally, it's good for people in the refining business and those engaged in the bullion trade. It's these categories that are growing here and we happen to be in both.
I do not rule out a situation where these categories of the local gold market will grow to be big enough to make up for the drop in the retail space.
The trade has been hit hard by the rise in prices and a consequent decline in consumer demand.
What's happening is gold's prominence rising as an investment commodity, both on an individual and institutional perspective. That's being seen in the interest being generated for bars, kilo bars, ingots, coins, etc. Banks are buying, other institutions are buying.
Ever since the Lehman Brothers collapse, gold as investment has been reflected in the way its prices have behaved. Whatever trends are there at the global level is being reflected in Dubai.
You believe this interest will continue awhile?
Going by the latest data from multiple sources, there's nothing to indicate it will be different. On the 20th of September, SPDR — the largest fund investing in gold — held 1,374.42 tonnes. In July, we saw they had liquidated stocks marginally, but has now started building up again. The gold stocks are back to their highest levels. When looking at gold as an investment, there are certain parameters which everyone tracks.
What about orders from Dubai's feeder markets?
Even with orders from India, we are seeing a marked shift towards gold bars and coins, indicating these are investment-based buying. It's been on the increase since the start of year.
But the good times for gold as an investment seem far removed from what's happening in the retail side of things. Isn't that of concern?
A year ago, $1,000 would get you 40 to 50 grams. A year later, it's will not be more than 15 to 20 grams. Obviously, that's going to hit consumer buying patterns. For retailers, while the ounce price is pushing ever higher, their profit levels are still the same. Many have started to take gold on fixed positions, whereas historically it's always been on unfixed terms. As long as gold prices tracks higher, they are safe doing fixed.
Kaloti Jewellery is shortly going to open offices in Singapore and Miami. Where's your advantage in doing so?
We already have a base in Hong Kong serving China. The Singapore office will be geared more towards trading possibilities in Thailand, Malaysia and Indonesia. Buyers there are not going to come here for their requirements because of the time zone difference and many other factors. By physically being there, we are trying to get a piece of that action.
