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Gold buying loses its sheen in the UAE

Transactions have dropped since June as buyers hold back purchases expecting further price drop

A jewellery shop in Dubai’s Gold Souq
Image Credit: Zarina Fernandes/Gulf News
At a jewellery shop in Dubai’s Gold Souq. Average transactions are in the range of Dh4,000.
Gulf News

Dubai: Gold’s golden run in the UAE retail market seems to be over… at least for the moment. After setting off a frenetic round of buying when the price tumbled on April 11 and which continued for the better part of May, gold’s sheen seems to have come off in June.

Nowhere is it more apparent than in the higher end of the jewellery sales spectrum, averaging Dh20,000 and more (for 80 grams and over) per buy. Such transactions have dropped significantly since June as buyers hold back purchases on sentiments that prices would start treading even lower levels.

The only activity seems to be at the lower end, where average transactions are in the Dh4,000 a buy range.

“The drop in retail demand has more to do with continued uncertainty over where gold prices are headed next, with many projections placing it at going below $1,300 an ounce [it was $1,365 on June 19],” said Shamlal Ahmad, director of international operations at Malabar Gold.

“Obviously, at the retail level here, this uncertainty is holding back prospective buyers, especially high networth ones, from committing to major purchases. Wait-and-watch is the dominant sentiment.”

All of which is far removed from the situation in the weeks following April 11. It had led to a run to jewellery shops across the UAE, created shortfalls in gold bar and coin inventory, and spiked premiums on confirmed deliveries to jewellery retailers.

According to Cyriac Varghese, general manager at Sky Jewellery, the present cooling off in buying is a natural outcome. “Such was the demand generated in April and May that people over-bought on their gold-related purchases at the first instance of prices turning favourable,” said Varghese. “Now, much of that demand has been satiated and buyers reckon they are better off waiting until the next favourable set of circumstances.” Also, other factors have also been playing against demand for gold. Expat Indians are using the weakened circumstances of the rupee - $1 fetches Rs58.68 and looks all set to breach Rs60 – to remit back to the home country. Gold, for sure, has slipped off the priority list with this buyer base, a significant driver of volumes in the gold trade here.

Even with India announcing a further hike on bullion imports — 8 per cent plus 1 per cent VAT against 6 per cent plus 1 per cent VAT earlier — from June 5 did not create the necessary bounce for the jewellery market here. What the increase did was to further widen the cost of purchasing gold in India as opposed to doing the same here, but nothing resembling increased retail demand has materialised so far.

“The street sentiment is that from current levels gold will find it quite difficult to move up, in fact all of the pressure building up is for it to tread lower,” said Varghese. “The upcoming Fed Open Market Committee meeting should provide some indication.”

Now, market sources are hoping that some demand upturn will be recorded by early next month when the holiday season starts and families, especially those from the subcontinent, head back home. “Retail buyers armed with their next pay cheques could provide some impetus post June 25, with many Indian buyers hoping to derive a good margin from selling in India on their trips home,” said Ahmad. “But again this will be a confined burst of buying — sustained activity will come only with a firm line on where gold prices are headed.”

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