Dubai: Gold prices may have had a partial recovery over the last week, but the premium jewellery retailers need to shell out to ensure they have enough bullion stock to get by has nearly doubled. As against the $5 an ounce average of two weeks ago, the premium for fresh deliveries is now hovering at the $10 an ounce mark.
Even with retailers willing to pay the premium, the market continues to see shortfalls in gold bars and biscuits due to “excessive — and sustained demand”. After taking a fall to $1,321 an ounce, prices were up to $1,463 and even touched $1,484 during a certain intra-day spell. But there is still a gap with the $1,580 an ounce before the fall came into play.
“There is a shortage of physical gold in the local market due to retail buying of small and medium gold bars (weight between 10 — 1,000 grams),” said Tarek El Mdaka, managing director at Kaloti Jewellery Group. “What made things worse is the demand from the Gulf, Mena region, Turkey and India which largely depend on the physical material from Dubai’s gold traders and refiners.
“However, we have started to see the volatility being reduced and if the price of gold stabilises, things will go back to normal in a week in my opinion.”
But leading retail chains confirm the higher premium on ensuring delivery has not been passed on to the showroom prices. “Considering the drop gold price has had, the [retailer] premium is minimal and customers are comfortable if they get [jewellery] according to their requirements,” said Firoz Merchant, chairman of Pure Gold.
Cyriac Varghese, general manager at Sky Jewellery, confirms the higher cost of bullion deliveries are being absorbed by retailers. “The rush to Dubai’s jewellery stores has not subsided since gold prices took a drop two weeks ago and even through last week when values recovered,” said Varghese. “It is vital retailers have enough stock at their stores at all times and paying higher premiums is one way to ensure it. No retailer can have a situation where shoppers come in and are told the store does not have the merchandise they seek.”
The market feedback is that all of the leading chains routinely carry two days stock at any given time, and will not lose any opportunity to go for instant purchases whenever bulk deliveries are available.
Some retailers have even spread their net wide to overseas markets — India, for instance — to stay on top of the supply situation. But even here there is a small window of opportunity — the second week of May is when Indians splurge on gold in ever more copious quantities for the ‘Akshaya Tritiya’ — and that means whatever surplus bullion is there in India will be absorbed by that market itself.
There are, of course, other options. “Gold refineries, banks and large gold traders have access to stocks from the London and Zurich market at a premium — pricing depends on the global physical demand,” said Tarek El Mdaka, managing director at Kaloti Jewellery Group.
“So, availability is linked to capacity to produce the smaller bars more rather than the availability of the raw material itself.”