Business | General

Retailers in UAE take a hit as gold prices drop

Lull in demand for gold as the price of the yellow metal plunge further

  • By Sarah Algethami, Special to Gulf News
  • Published: 18:46 April 15, 2013
  • Gulf News

Dubai: UAE based gold retailers and investors took hits on their physical gold holdings and portfolios on Monday as the precious metal continued its plunge to the lowest point in 20 months.

Spot gold dropped as much as 6.3 percent on Monday alone, hitting a low of $1,384.69 an ounce. In the last two sessions gold has fallen more than 9 percent, making for the worst two days since March 1, 1983. Gold was recently at $1,407.40, still down nearly 5 percent.

While there has been heavy retreat of investors from exchange traded funds (ETFs), hedge funds have cut bets on higher prices by 72 per cent since October.

Dubai-based gold retailers reported a lull in demand for gold as the price of the yellow metal plunged further. Many gold retailers who do not actively hedge their stocks in the futures market said they will be forced to take losses on their stocks.

Shamlal Ahmad, managing director at Malabar Gold and Diamonds, said his company’s stock of physical gold is not hedged against international market prices. Many are hoping that the price plunge is a short-term market correction and the metal would bounce back.

“We are not covered [after the drop in gold prices], which is reflected as a loss in our books. But this is only for the short-term, and will not affect our business,” Ahmad said.

The price of gold has dropped to $1,411 an ounce on Monday morning from $1483 at Friday’s closing.

Joyalukkas Jewellery, a prominent retailer, said their stocks are hedged to absorb the price shocks. “We have “hedged [our] base stocks in futures markets,” said Thomas Scaria, head of corporate finance, at the company.

“We buy our [physical gold] quantities on the day’s prices,” Scaria said, adding that the bulk of Joyalukkas’ profits come from the making of jewellery, which is why they are not affected by the drop in gold prices.

Damas Jewellery declined to comment when Gulf News tried to reach them. Malabar Gold’s Ahmad said gold sales on Saturday were five to six times more than previous Saturday’s sales at Malabar’s stores. Many retail investors continued to buy gold on credit cards hoping to make quick profits. “In the last four days, more than 55 per cent of purchases at Malabar’s stores are via credit cards,” he added.

Institutional investors said the sell-off in gold is an opportunity for long-term investors to buy and accumulate the metal at attractive levels, but investors having a shorter time horizon should increase their exposure to equities.

“If you are an institutional investor and have a very long-term investment horizon of say, 10 to 20 years, somewhere between 5 to 10 per cent gold holding in the overall portfolio is a normalised allocation,” David Pinkerton, chief investment officer at Switzerland-based Falcon Private Bank told Gulf News by telephone.

He said gold currently offers a weak alternative to the US dollar since it’s become a very strong currency. The turn in the gold cycle is quickening and investors should sell, Goldman Sachs Group Inc. said on April 10. Prices also fell last week on speculation Cyprus may sell gold.

“The downside in gold is temporary. The decline in gold prices is due to Exchange Traded Funds (ETFs) liquidating their stocks and because the speculators have decreased their long positions in the last quarter. Any drop below $1,400 per troy ounce is an opportunity to accumulate gold,” said Pradeep Unni, senior relationship manager at Dubai-based Richcomm Global Services.

(With inputs from Himendra Mohan Kumar, Staff Reporter)

— Sarah Algethami is a trainee with Gulf News

Comments (1)

Share your views
  1. Added 11:34 April 16, 2013

    Further details should have been provided to explain the background of the gold price dropping. The global PHYSICAL INVENTORY of precious metals was being drained and this was reaching dangerous levels. In simple terms – there is insufficient metal on stock to satisfy investor demand for physical gold. In 3 months of 2013, 230+ tons of physical gold was demanded by investors who before had ETF’s (= gold on paper). In February 2013, over 110 tons on physical gold was demanded by these paper-holders. Look at the gold inventory drain at the COMEX, the situation is near critical levels. The fall in gold price is due to a desperate manipulation of news because the gold and silver markets were many times recently poised to make a substantial upwards move - at a time when physical metal inventory was at dangerously low levels. What is happening now is the Western Governments along with the IMF world bank are so cornered that they are using every last straw in order to try and contain a gold price movement that would be so powerful that it would confirm to the world what is going on - a complete LOSS OF CONFIDENCE in the paper-based fiat monetary system. Gold is the catalyst that if unleashed right now would bring down the banking system. Manipulation is pushing the gold price down to show the public that paper-based money, not gold or silver, controls their financial destiny. Best to buy precious metals now or sit back and ride it out. I do pity the gold dealers and sellers who bought high and have to keep their doors open for business and sell at a loss. Please support the merchants in the gold souk by keeping your buying offers fair!

    Louie Tedesco, Dubai, United Arab Emirates

Gulf News
Quick Access

  1. Markets

  2. Economy

  3. Property

  4. Aviation

Business Top Stories

  1. UAE 12th most competitive nation

  2. India infrastructure hopes hit roadblock

  3. Bitcoin miners push on in eternal hope

  4. Waiting on mobile ads to show up

  5. Beware of any further acceleration in stocks