Prebookings are building up ahead of May 10's marking of the Indian festival of 'Akshaya Trithiya'. UAE jewellers are gunning for gold exchange schemes and discounts on making charges to get shoppers back. Image Credit: Virendra Saklani/Gulf News

Dubai: Is it the right time for UAE consumers to go in for gold exchange – or return – schemes? Prices have once again shot up overnight and back to $2,300 an ounce plus levels.

It’s currently trading close to $2,318, having gained nearly $30 over the last few hours.

Decisions on exchange schemes – essentially returning old gold jewellery for new ones – will be particularly significant between now and May 10, which is when the Indian festival of ‘Akshaya Trithiya’ is marked this year. (The festival is associated with extensive gold and jewellery purchases and is one of the peak phases for UAE’s gold retail too.)

Based on the current gold rate, someone who bought gold 5 years ago would be better off by just over $1,000 on an ounce basis if they were to exchange it today. (One ounce equates to 31 grams. The UAE gold rate for 22K is 258.25 a gram.)

“There is a strong possibility that UAE shoppers will be engaging in ‘trade-ins’ these coming days,” said Abdul Salam K. P., Vice-Chairman of Malabar Gold & Diamonds. “Especially after today’s gold price rise – if this continues for another 24-48 hours, exchanges old for new will make sense for shoppers buying for Akshaya Trithiya. Because the pre-bookings have been increasing in recent days for purchases on May 10.

“The UAE gold retail is also expecting some Indian tourists to go for the same exchange schemes, and we are still seeing some major inflows of these shoppers.” (Within India, gold buying has been muted in recent weeks as the federal elections are taking place, which historically has been a slow period for jewellery sales. But Indian tourists to the UAE are still buying...) 

There is a strong possibility that UAE shoppers will be engaging in ‘trade-ins’ these coming days...

- Abdul Salam K. P. of Malabar Gold & Diamonds

Exchange schemes allow shoppers to return their jewellery and directly gain from the current higher prices compared to what they bought. The only loss is on the making charges, but here too UAE jewellers have been cutting back their making costs by between 20-40 per cent to encourage shoppers during this high-price phase.

Holding back?

Earlier this week, the World Gold Council’s Andrew Naylor had said gold consumers in the UAE, the Gulf, India and other Asia markets did not go in for exchanges during the first quarter of 2024, even when prices were consistently hitting $2,300 levels. “But we saw consumers in the West doing profit taking on their gold, while earlier they would have been the ones to hold on for the longer term,” said Naylor.

It could be that shoppers here still expect to see gold making a dash for $2,400, which it had hit for a brief period, and even go all the way to $2,500. (For that to happen, a lot rests on the US Federal reserve, which once again kept rates constant. Also, geopolitics will have its say, given the continuing absence of a ceasefire in Gaza.)

Gold will remain volatile – in fact, just yesterday, it had gone down from $2,321 to $2,282 levels, the first time it had dropped below $2,300 in some time. And then by late evening, it was back in recovery.

Gold's correction and then an upturn

“Gold is back to on an upswing from the correction levels of $2,282,” said Vijay Valecha, Chief Investment officer at Century Financial.

“This can be majorly attributed to the less hawkish US Fed comments. Another comment, this time from the ECB, also expects the Eurozone inflation levels to subside to 2 per cent or below next year, signalling lower chances of further rate hikes.

Global markets have started pricing in rate cut expectations in the September FOMC meeting in the US. This could end the correction on gold prices for the time being.

- Vijay Valecha of Century Financial

In other words, gold could be finding its way back to $2,350-$2,370 levels in the short-term.

As for UAE shoppers still undecided about what to do for May 10 and Akshaya Trithiya, current levels do make for a solid exchange possibility.