Low UAE gold prices set off buying surge

Dubai: Shoppers of gold and jewellery in the UAE have never been in need of a reason or an excuse to buy.

There would always be an occasion coming along to indulge in purchases at various times throughout the year, and if any incentive was needed it would be provided by the generous seasonal promotions such as daily raffles and 1 kilogram of gold as takeaways.

But the ongoing softness in global gold prices are prompting more shoppers to snap up more of the metal in its various forms. According to estimates from the local jewellery trade, retail offtake for the full year in the UAE could be up by 15-20 per cent in volume terms (in kilograms) compared with 2013. If only the second half of the year is taken into account, which was when prices started to show real weakness, volume gains could even be in the 40 per cent range.

“In markets such as the Gulf or India, the price of gold is no longer such a factor in determining customer buying,” said T.S. Kalyanasundaram, Chairman and Managing Director of Kalyan Jewellers, which is working its way towards a major expansion of its retail network in the Gulf.

“It’s become a custom — where gold prices are at any particular moment can only bring forward or slow down a purchase. But the purchase decision is already there.”

With gold slipping to its lowest levels in four years — $1,137.10 (Dh4,173.16) an ounce globally and Dh132.25 a gram in Dubai on Wednesday — shoppers have been quick to take advantage.

Through the week, the retail sector has been reporting significantly higher transaction levels, and ensuring that a sharp dip did not happen as is usual during the post-Diwali (the Indian festive season in October when buying of gold is at a seasonal high) phase.

The UAE retail trade accounts for 150 tonnes a year of the metal on average, while the overall GCC markets take up 250 tonnes. According to Abdul Salam K.P., board member of the Dubai Gold and Jewellery Group, “Last year, during April and May, when gold prices took a sudden dive, it set off a major wave of retail buying in the UAE, and even led to a situation where retailers had to pay a higher premium to ensure physical delivery for themselves.

Regain lustre

“The recent round of softness — the lowest levels in four years — will ensure that this year’s overall volumes [in weightage terms] would go past 2013’s, by around 15-20 per cent.”

But retail sources believe that after bottoming off, prices will have to regain some of the lustre. “Gold producers are digging ever deeper into the mines and that raises the cost of production,” said Kalyanasundaram. “It won’t be economical for them to bring out gold if prices were to dip even further. At some point, there has to be a movement towards $1,300 an ounce — that is a bare minimum.”

But retailers are not thinking too far ahead... for the moment. If the price weakness persists for a few more weeks, it could be the perfect close to the year and retailers’ top-line numbers.

“Already by September end, we had overtaken the full-year volumes we had in 2013, and with the current weakness in gold prices, it can make for an extremely busy end-of-the-year activity,” said Cyriac Varghese, General Manager of Sky Jewellery, which is adding more stores. “The gold retail business in Dubai/UAE is in line for one of the best years ever. The current pricing will have added another 15-20 per cent of volumes on an annualised basis, much of which squeezed into the second-half of the year.”