Dubai: UAE shoppers have a reason to get back into gold and jewellery over this weekend with the metal’s prices slipping below $1,200 (Dh4,408) an ounce late on Wednesday for the first time since February.
But the local jewellery trade will have to make do without any support from Indian tourist arrivals, who were hit hard by the Indian Government’s November 8 move to pull out some denominations and replace them with new. These shoppers from India have been a mainstay of the gold retail trade here all through the volatility gold prices went through in recent years.
And their continued presence partially compensated for the steep drop in buying by Chinese — and to an extent — Russian shoppers of 22-karat gold. Gold and jewellery purchases by Indian visitors to the UAE accounts for about 20 per cent of the sector’s overall volumes, some estimates suggest.
But the demonetisation move has broken the support completely. Compounding it is the dollar’s rise and the Indian rupee falling to a record low of 68.86.
“They would come in carrying rupees and which would get exchanged at the local currency houses to dirhams to finance the purchases,” said Abdul Salam K.P. of Malabar Gold & Diamonds. “Particularly for the trade in Dubai, their absence now will be a gap difficult to plug for some time.”
But for the short term, UAE’s gold trade is hoping the sub-$1,200 price level (Dh135 a gram as per the Dubai gold rate) should bring back domestic shoppers in large enough numbers. Spot gold was up 0.4 per cent at $1,188.14 an ounce at 1449 GMT on Friday as funds took profits on short positions, from an earlier $1,171.21, its lowest since February 8.
On Thursday, retailers confirmed a pick up in traffic at stores and could continue through this weekend and the extended one next week on account of the national holidays.
They will need all the help they can get — right through the second and third quarters, domestic demand was weak, based on World Gold Council numbers. The only periods — extremely short ones at that — when demand spurted was late last month, which coincided with the Indian festival of lights “Diwali”, and a traditional peak period for gold buying. At that time, gold was at $1,270 an ounce.
Dubai’s jewellery traders are hopeful the coming days could offer a mini Diwali of sorts. “The three-day UAE National Day sale organised by DFRE (Dubai Festivals and Retail Est.) will also drive tourists from the other Gulf countries,” said Chirag Vora, Director at Bafelh Jewellers. “This has been a completely unexpected 10 per cent drop in gold prices.”
The pressure on gold prices should continue … and that could help revive a more sustained round of buying by UAE shoppers, “Dollar’s getting stronger, which reversed the spike to $1,337 an ounce in gold prices on November 9 after (Donald) Trump’s upset victory,” said Cyriac Varghese of Sky Jewellery. “That immediate spike was because of the belief that a Trump win would have detrimental effects on the economy and the stock markets. The impression was that the dollar would weaken.
“Post November 9, the reverse sentiment has taken hold completely and dollar’s surging.” (Analysts’ opinion in the run-up to the US election was that a Trump presidency could push gold into the $1,400 plus level.) Short-term, further gains for the dollar — and consequently gold prices slipping — will depend on the latest US jobs data and the Federal Reserve’s now imminent decision to hike interest rates. That could become clear by the second week of December.
“Gold spots are trading below $1,200 per ounce for the first time since February,” said Mihir Kapadia, CEO of London based Sun Global Investments. “While gold can receive seasonal support in December and January, the prospect of higher (US) interest rates in January has the potential to cap returns on gold for investors.”
India’s jewellery sector loses all lustre
The gold and jewellery trade is feeling the heat from demonetisation — shoppers are staying away and things are not likely to change any time soon. Add to that the dollar’s rise and the rupee’s weakness.
So much so, “Despite the 10 per cent drop in global gold prices, this was not reflected in Indian showroom prices because the rupee’s losing its value,” said Cyriac Varghese of Sky Jewellery.
The gold trade and Indian shoppers are concerned that future domestic buying will come under extra scrutiny from the authorities. The talk is that once the demonetisation drive is concluded, the next step would be to chart household holdings of the metal. This is because gold and property have historically been the repositories of unaccounted (black) money generated within India and retained there.
If the pressure continues, Indian’s gold lust will be dimmed somewhat.