Dubai: Tourists are the only ones picking up jewellery in Dubai right now.
A combination of escalating gold prices and higher VAT charges are put off buying by UAE resident shoppers.
On Friday (January 3), when the Dubai gold price for 22K was Dh176.5 a gram, the VAT component came to Dh8.825 a gram — the highest it has touched since January 1, 2018.
“Thankfully, the Dubai gold trade had some strong buying support from tourists,” said Cyriac Varghese, General Manager at Sky Jewellery.
“In fact, since DSF 2020 started last week, 80-90 per cent of transactions at shops have involved international visitors, who benefit from VAT refunds.
“Tourists are also buying more gold per transaction - the average purchase in terms of weight would involve about 32-40 grams based on the last seven days. They are buying more bangles and heavy chains, two products that had not been moving well since June.
“In comparison, per transaction purchase by domestic shoppers is at 16-24 grams. High prices and VAT is putting a lid on domestic demand.”
More shocks in store?
There could be more buying condensed into Saturday and Sunday before the international commodities markets open Monday.
Gold prices could then see a sharp and sudden spike depending on how the markets price in uncertainty caused by escalation of tensions in the Middle East after the slaying of an Iranian general.
With the bullion markets closed for the weekend, Friday’s prices - of $1,553.5 an ounce - was already higher by $40.4 over Thursday’s closing.
Most retailers and market watchers are predicting further volatility for gold and other commodity. Shoppers too seem to be thinking along the same lines - early Saturday buying at local jewellery shops was brisk, and again led by tourists.
“This represents the best tourist buying in the last three DSF campaigns,” Varghese added.
Breaching $1,500
It was in August last that gold went past the $1,500 an ounce mark for the first time in six years, and which essentially pushed resident gold shoppers to the sidelines. There was some buying in October after prices stabilised somewhat. But the renewal of increases has again forced domestic shoppers to wait and watch.
According to Chirag Vora, Director at Bafleh Jewellers, “Gold in 2019 saw a steady 20 per cent rise year-on-year. Going forward, the first quarter of 2020 may see steady growth, and testing the $1,550 levels and heading towards $1,600. The prices are of course news-driven.”
Vora is spot on about the news bit. He made those comments just before the Iranian general’s killing.
Anyone following gold will await early Monday morning trading activity to see which way the wind is blowing for prices. One sustained push is all that is required to get past the $1,600 an ounce mark.
At those levels, it will take a lot of convincing for domestic shoppers to make a return to buying.
A 48-hour window
But from 10am today to 10pm on Sunday, shoppers have a window to pick up gold before any further spikes. Dubai’s jewellery retailers are betting on that sentiment over the next few hours.
A year when gold just kept going up... and up
Dh1,285 an ounce and Dubai Gold Price at Dh146 a gram - that was where gold was at on January 1, 2019. And the VAT was at Dh7.3 a gram. It all seems a lifetime ago.
Since June last year, pressure on gold prices has been unrelenting. Each time there was a further escalation in the US-China trade spat, gold felt its heat. There were many such moments in the second-half of last year.
Now, gold’s upward mobility could enter a whole new range, with $1,600 an ounce the next level. It’s no longer about whether gold can be pushed that high - these days, it’s more about how soon this could come about.
