Dubai: A fifth of the world gold supply is traded through Dubai. However, the value of gold traded through the emirate crossed $70 billion (Dh256 billion) in 2012, or 29.61 per cent of the $236.4 billion global gold demand recorded by the World Gold Council.
“On a tonnage basis, demand totalled 4,405.5 tonnes in 2012, down by 4 per cent from 2011 as an increase in demand from institutional investors and central banks only partly offset a year-on-year decline in consumer demand,” the World Gold Council (WGC) said in a latest report.
Gold and diamond trading through Dubai could reach $170 billion (Dh623 billion) this year, Ahmad Bin Sulayem, Executive Chairman of the Dubai Multi-Commodities Centre (DMCC), told a conference recently.
Gold tumbled to $1,325 per troy ounce on April 15 from its high of $1,990. That sent retail investors rushing to cash in on the situation.
“It has become increasingly clear over the course of the past week that the fall in the gold price was triggered by speculative traders operating in the futures markets. Their short-term view of generating a trading profit is in stark contrast to the views of long term investors in gold, as evidenced by the massive wave of physical gold buying that began over the weekend and accelerated following Monday’s [April 15] further decline,” Aram Shishmanian, CEO of WGC, said in a statement.
The surge in gold purchases is spanning markets from India and China to the US, Japan and Europe. Buyers are viewing this as an opportunity to purchase gold at prices not seen in the past couple of years, he said.
Sell-off
Gerhard Schubert, Head of Commodities Wealth Management at Emirates NBD, said, “The week started with the huge sell-off which brought prices down to the $1,325 level, only to be repeated the following day with sweeps down to the $1,335 level. However, there was and is some light at the end of the tunnel as unprecedented physical demand from all over the world started to take advantage of these “low” prices.
Locally, gold retailers have witnessed a solid jump in sales – although this might not be good news for those who have excessive exposure in leverage.
“Our sale has jumped 190 per cent this month, triggered by the fall in gold price where retail buyers are benefitting on at least $350 discount per ounce compared to the recent peak price,” “If this trend continues, we expect a higher sales turnover this year,” Shamlal Ahmad, Managing Director of Malabar Gold told Gulf News.
However, he warned that those retailers who have leveraged high, might go out of business due to the loss in value of gold.
“Although we have higher sale, we are managing by same day purchase and sale and this is how we are managing the loss in the value of gold. Some retailers with too much leverage in the market might not be able to sustain a prolonged period of lower price,” he cautioned. “However, this is a good time for investors to cash in on the current prices.”
Dubai – the city of gold – has already witnessed a shortage of coins and bars due to the rush of buying.
Shortage
Shishmanian of WGC said, “We are already seeing shortages for bars and coins in Dubai, while premiums in Mumbai are at $26 and $6 in Shanghai, indicating that buyers are willing to pay more than current spot prices for the metal.”
Schubert said, “The situation in Dubai has surely been similar to all over the world, where smallish discounts against London prices changed into decent premiums for physical gold. The Dubai Gold Souq, based on anecdotal evidence, looked more like a busy central train station, with buyers clearly in the driving seat.”
However, Ahmad said the prices of the yellow metal might not go below $1,250 as mining production cost varies between $1,000 to 1,200 an ounce. “I do not expect the mines to sell gold below their cost.”
Schubert said, a significant amount of gold mining companies will start seeing negative cash flow scenarios, “if prices do establish themselves around or even under the $1,300 level”.
Aram Shishmanian said, “Gold operates on the basic economic fundamentals of demand and supply. Our view is that demand is strong while supply remains constrained, and that this dynamic ultimately drives the long-term price of the metal.”
