Consumers eyeing an investment

Gold prices moving above $1,000 per ounce might have been expected to prompt consumers to give pause.

Opinions differ about that for the medium term, but the market certainly reacted, deciding the metal was suddenly overpriced.

"Gold buying on a retail level has dramatically reduced. This is very typical of the markets in the Middle East and on the Indian subcontinent. Interestingly enough, this is not only true for higher prices but also when the price drops," former World Gold Council head Rolf Schneebeli told Gulf News.

"Whenever there is a sharp move on either side, it takes some time for consumers to adjust to the new price; this might be two to three months. Earlier on, this behaviour of the regional physical markets exerted a stabilising effect on the global market. Today, this seems, however, not to be the case as the price is dominated by investment, hedging, speculation demand," he added.

He said this period would have been very bad for the jewellers in the region if there had not been a diversification into diamond jewellery, which is quite resilient to fluctuation.

However, Anil Machado, operations manager for Damas Jewellery, said even as gold prices have been soaring, there has been no sign of consumer pullback. In fact, he added, people in Dubai are "buying jewellery like they're buying vegetables."

"This was evident during the DSF (Dubai Shopping Festival) when our sales exceeded our expectations. It was maddening for us. Consumer demand did not go down in spite of soaring gold prices, and even the competition did not matter," Machado told Gulf News.

Form of investment

Machado said the reason people are not discouraged is that ordinary consumers consider buying gold items as a form of investment, and the more the value of gold increases, the more secure people feel about their investment. "I can see this trend is going to continue," he added.

Consumers interviewed by Gulf News have mixed feelings.

"I will still buy gold jewellery even if it gets more expensive. Not this year, maybe next year. Gold continues to appreciate and investing in it earlier is a practical move. You get the same result when you buy a property," said Hilda Tan, a real estate administration manager.

Che Formoso said she would resist buying gold when it was skyrocketing. "But if my earnings increase, I'll possibly buy even if it's expensive, because no matter how you look at it, the value of gold will still rise," said Che, who had spent about Dh20,000 on gold jewellery in a year.