No visit to Dubai is complete without a trip to the Gold Souq which is classified as a world heritage site. Image Credit: Zarina Fernandes/ Gulf News

Dubai: It’s not just the shopping season in India that got wiped out by the demonetisation move — Dubai’s famed Gold Souq is seeing a complete absence of visitors from India exchanging their rupees to make jewellery purchases here. In a good year, these rupee-led transactions would have accounted for close to 15-20 per cent of sales at the Gold Souq, and more when gold prices take a dip (as it did last week).

For the single-store operators at the Souq, the demonetisation hit has been extremely severe. There has been some compensation in the form of Chinese visitors being more active in recent weeks with their gold buying. But this is nowhere near the levels Indian visitors do, and, moreover, Chinese preferences for the 18-karat as opposed to the 22k, say retail sources.

Earlier this month, gold fell to a 10-month low as a firming up dollar kept its momentum, and with a little help from the US Federal Reserve’s slight interest rate hike and confirmations that more are on the way in 2017. Gold is now trading in the $1,130 an ounce range. (Dubai’s gold prices dipped below Dh130 a gram as of December 24.) “Outside of the Gold Souq, shops in areas such as Bur Dubai too have been recording less of Indian visitor buying interest,” said Cyriac Varghese, General Manager of Sky Jewellery. “What you are seeing here is a complete mirror image of the crash in gold sales within India since November 8, when demonetisation was announced.”

In a move to drastically curb unaccounted money floating in the system, the Indian Government cancelled the Rs500 and Rs1,000 denomination notes and replaced with a higher value Rs2,000 as well as a brand new Rs500. But the result has been an acute shortage of new notes to replace the old. (The government’s expectation is that the supply deficit could be eased by around December 31.) But demonetisation also managed to severely dent prospects for gold and jewellery sales as well as of real estate in India. These are the two categories where unaccounted money would wash up in, unless the holder wanted to hoard up on paper cash.

Indian gold demand could take another big dent if the government now decides to expand its stance against unaccounted income to take in what is stashed in bank lockers across India.

“A visitor from India would travel to Dubai holding a sizeable value in Indian currency, get it exchanged here and then make the conversion to jewellery,” said Abdul Salam K.P., board member of the Duai Gold & Jewellery Group. “In most cases, this was money that would not be accounted for as part of his income. None of such payments would be using the credit or debits cards of the buyer, which would serve no purpose because that would then be part of his accounted income.

“With demonetisation, surplus cash is just not available … and same is the case with what someone could do with their unaccounted rupees.”

Local currency exchange houses are not helping anyone holding the older currencies either. Antony Jos, Director at Joyalukkas Group said: “At present we are not accepting or exchanging any of the discontinued currency notes, taking into consideration the guidelines that need to be adhered to on account of demonitization, We are closely monitoring the situation.”

For the gold trade here, it is back to hoping that domestic shoppers will be lured by the lower prices and the sizeable promotions — 34 kilos are on offer during the DSF 2017 campaign — coming their way. The tourist-led walk-in sales from countries other than India have been improving. But these are only marginal gains ... at best.

The only external help in these circumstances would then be for gold prices to continue their downward path. They have a marker they could refer to — on January 1, 2016, the metal was trading at $1,060.54 an ounce. If a President Donald Trump and Janet Yellen, the US Fed chief, can get the dollar higher, gold will seem less of an investment haven. Dubai’s jewellers will need their help.