Dubai: Global consumer demand for gold jewellery had its best quarter in some time as prices dropped 8 per cent during the period. In fact, at 523 tonnes, jewellery buying in the July-to-September phase was higher than the five-year quarterly average of 501 tonnes.
“Demand for jewellery demand is back to pre-Covid times - back to normal,” said John Mulligan, Director for Market Relations at World Gold Council. “What we are seeing is a healthy consumer market, and apart from jewellery there is strong bar and coin demand too.”
The trend is continuing. In the UAE, October has been an exceptionally strong month, as prices kept to in and around $1,650 an ounce levels (or under Dh190 a gram for 22K in terms of UAE gold rate) for much of the time. Currently, gold prices are down to $1,632, ahead of the expected US Fed rate hike on Tuesday (November 2), which typically would mean dollar gains and decline in bullion prices.
Diwali brings the sparkle to gold
UAE consumer demand was brought on both by the weaker gold prices and the heavy buying that happened in the run up to Diwali on October 24. Retailers say that particular weekend sales was the best they had so far this year.
In the days since, tourist buying has emerged strongly to support demand, as ‘safe haven’ buying of gold picks up momentum. “Visitors from the other Gulf countries, especially Saudis, and from Indian subcontinent have driven gold buying all through October,” said a retailer. “If prices remain at around Dh185 a gram, we can expect tourists to remain interested in the next two months.
“As for resident shoppers, it might be some time before we see levels back to what we saw during Diwali.”
Tourist-led shopping will continue even with the latest Fed rate hike, expected to be by another 0.75 per cent. (If so, this would be the fourth successive time the increase has happened by this margin.)
“It’s not the case that gold prices have immediately dropped with each US rate increase,” said Mulligan. “A lot of that is already factored into the gold pricing, which is why there is little immediate headwind once the rate increase comes into effect. And even if there is a headwind, it’s relatively short-lived.”
According to UAE jewellery retailers, they have already factored in a higher demand from tourist buyers in the coming weeks. "If October was strong, November is going to be exceptional," said Shamlal Ahmed, Director of International Operations at Malabar Gold & Diamonds. "One of the must-buys from Dubai or the UAE is gold, irrespective of where the tourist is coming from.
“After 3 years, we are back to seeing MICE and ‘incentive travel’ return to Dubai in a big way, with global companies bringing their employees together here for conferences or just to reward them.
“Plus, the weddings in Dubai is again likely on track to have another bumper season, and we can feel that in our jewellery demand for upcoming wedding ceremonies happening at the Palm or elsewhere. The 'Destination Dubai' project has been one of the biggest boosts for gold sales in the city."
UAE gold buyers are getting comfortable with a price range of $1,600-$1,700. After two-three years of facing $1,900 plus, they are taking full advantage of gold's drop. We saw that happen all through October
An 8% price drop
During the quarter gone by, there was an 8 per cent drop in gold price, after being in the $1,700 and over range for the better part of the year. (In March, gold had shot up past $2,000 briefly after the launch of the Russia-Ukraine conflict.)
“In what is a difficult year for equity and bond portfolios, gold has held up well,” said Mulligan. “On a year-on-year basis, gold is only down 3 per cent.”
During July to September, one of the reasons for the strong showing on jewellery had to do with buying in India. This even when the import duty had been hiked to 15 per cent. “The Indian market for gold and jewellery is remarkably resilient in absorbing change,” said Mulligan. “Even with facts such as duty hikes, the normalising in demand patterns happen quickly.
In the latest quarter, strong demand is there from urban consumers. I don’t know whether the Diwali by themselves were exceptional, but it was strong enough.