Dubai: The gold trade has been one of the engines of Dubai's explosive economic development over the past two decades, and the World Gold Council (WGC) has played an increasingly prominent role in this progression.
In fact, the sobriquet ‘City of Gold', in reference to Dubai, has been developed by the WGC. Now, the WGC and the emirate's gold traders are considering ways in which their glittering industry can help the emirate along the road to recovery from the effects of the global financial crisis.
The yellow metal has always been valued in the Gulf region, both as a currency and a material from which to fashion some of the most beautiful objects known to man. Dubai's geographical location — at the centre of the route from the gold-mining regions of Africa to the Asian markets where gold plays a significant cultural role — continues to position the emirate as an important hub for the international gold trade.
The physical manifestation of that trade is still the Old Gold Souq in Deira, which emerged in the 1940s in the bustling heart of the city's commercial and trading district.
Nestling beside the Creek with the traditional boats, or dhows, that trade along the Arabian Gulf and the Indian Ocean, it is not hard to imagine now how these vessels would sail to Iran, Pakistan or India with a cargo of precious bullion in their holds.
The clandestine nature of some of that trade in the early years only added to the mysterious allure of the metal.
But the industry was chaotic and unregulated, and nowhere was this fragmentation more obvious than in the Souk. Rolf Schneebeli, chief executive of Joy Alukkas, who came to the region in the early 1990s as chief executive of the Middle East branch of the World Gold Council, sums it up: "There was no quality control, limited ethics and cut-throat competition."
The gold business then was essentially based on commodity transactions; gold was thrown onto a weighing-scale and sold according to the prevailing market price. Margins were small, opportunities for added value limited.
It was rare to see different types of jewellery — platinum, diamonds or other precious stones — on offer at the Souk. Emirati nationals were hardly represented among the gold retailing community, which was dominated by Asian merchants.
Then the WGC stepped into this relatively primitive environment. Founded in 1987, it represents the biggest gold producers in the world, and sees its role as stimulating and sustaining the demand for the metal. Dubai was a suitable case for treatment.
The WGC chose Dubai as the most appropriate location for a regional centre for the gold trade. Geography, transport infrastructure, security and a blossoming financial system combined to give the emirate a lead over rival cities in the Middle East and South Asia region.
"We decided Dubai was the only place in the region for us," said Schneebeli.
The Dubai Gold and Jewellery Group was set up in 1996 as what is believed to be the first ever trade organisation in the region to promote both the gold and overall jewellery industry. Its remit included the setting of quality control standards and advancing new trends and products. Two of the mainstays of the new set-up were ARY and Damas, the jewellery manufacturer and retailer that was to play an increasingly significant part in Dubai's gold business.
DSF boost
The biggest boost to Dubai's emergence as the ‘City of Gold' was, however, the Dubai Shopping Festival, which also began in 1996. DSF set the image of Dubai as a place of ostentatious consumption of luxury goods.
The Dubai ‘gold rush' began with DSF and gained momentum for the next decade. Schneebeli says there was a "kind of euphoria" about the event in those high-growth days, with people flocking to the DSF sites and all looking to take part in the draws, competitions and raffles in order to get their hands on some ‘Dubai Gold'.
The influx of shoppers had a multiplier effect on the Dubai economy, providing a stimulus to airlines, hotels and leisure outlets. This was the era in which the cavernous and glamorous shopping malls, for which the emirate is world-renowned, were conceived and designed.
Perhaps 2005 can be viewed as something of a peak.
But despite the stricter spending habits of the past two years, gold is now recovering its lustre. Last May, retailers experienced their best day of the year on the back of the Indian festival of Akshaya Tritiya, in which gold plays a big part. The souks were once again buzzing as consumer confidence returned. Now Dubai boasts three gold and jewellery sales centres, as well as large jewellery retailing sections in all the big new malls.
Ajay Mitra, the current managing director of the WGC for the Middle East, India and Turkey said, "The recent success of the Akshaya Tritiya festival is evidence of our efforts as an organisation to support the trade and ensure consumers are presented with the best of gold products and that traditional festivals such as this remain alive and well. Indeed we saw sales grow by 12 per cent over the same period in 2009, and more than 720 kilogrammes of gold bought on that one day across the GCC."
The WGC has helped promote activity in the with initiatives like the creation of the world's longest chain (along with Siroya Jewellery, one of Dubai's prominent gold and jewellery groups and AngloGold Ashanti (then AngloGold) and the world's biggest ring (with Taiba). The organisation has launched a number of key industry reforms. It co-operated with the Dubai Central Laboratory on quality standards and regulation. "The business is much better organised now," says Schneebeli. "It is more structured and healthy."
However, Mitra said that while the industry has enjoyed long-standing success in the jewellery sector, "there are numerous opportunities to protect and grow further gold demand, through initiatives that improve merchandising and product innovation".
He said there is scope to grow demand in the investment sector. "The financial crisis has prompted investors across the world to re-evaluate their investment portfolios, and diversify their exposure to specific asset classes, providing more protection to their wealth."
The financial crisis that swept the world in late 2008 has also had important repercussions for the gold industry. Market prices soared as investors looked to gold as a tool to bring stability to their portfolios and to provide a solid way to mitigate risk for their funds in uncertain economic times.
"There is scope for investment demand for gold to grow significantly, but for this to happen there needs to be a greater range of products and solutions made available in the UAE and the region, and this is something we are looking at," said Mitra
While the price of gold has drawn a great deal of attention recently, the rise has been continuous over the past nine years. The trend continues to be upwards, reinforcing the reputation of the yellow metal as a good investment in both the hard times and the good times.
The World Gold Council continues to work with industry players, as it has for decades, towards the road to economic recovery in the region.
Do you trade in gold? Has the high price changed your buying habits? Are you considering switching to diamonds?
