Gold prices have shot up in the first 10 days of 2020, pushing shoppers to the sidelines. Image Credit: Gulf News archives

Dubai: UAE’s gold and diamond retailers are hoping for a rollback of the 5 per cent import duty on jewellery, saying such a move would free them from the extreme volatility gold prices have been having since June last.

It was in January 2018 that Dubai and Sharjah - the two key destinations in the import of jewellery into the region - imposed the 5 per cent duty. Earlier, Dubai and Sharjah had exemptions on the duty.

Coupled with the 5 per cent that also came into effect in January 2018, it immediately had an impact on showroom prices, hurting, in particular, Dubai’s reputation as one of the best places in the world to pick up gold inexpensively. (On Wednesday, Dubai’s gold rate was revised to Dh180 a gram after initially starting the day at Dh181.25.)

It is this 5 per cent import duty that retailers feel could be done away with to revive the sector’s fortunes.

“Each time gold prices rise - and these days it’s constantly on the rise - UAE jewellers face the brunt of it,” said Abdulsalam K.P., Executive Director at Malabar Gold & Diamonds and a member of the board at Dubai Gold & Jewellery Group. “The retail market will find it extremely hard to survive solely on selling “gold as an investment asset” theme. With each new level prices rise to, shoppers are staying away.”

Abdul Salam KP Malabar Gold 30122018
Abdulsalam K.P. of Malabar Gold & Diamonds is one of the voices calling for a re-look at the UAE's 5 per cent import duty on jewellery. Image Credit: Supplied

The last seven days show why this is so - gold prices were pushed higher immediately after a spike in US-Iran tensions since last Friday (January 3). On Wednesday, it pushed past the $1,600 an ounce mark for the first time in six years, before settling down to $1,560 levels after US President Donald Trump dialled down on the conflict escalating.

It has impacted on gold jewellery buying during DSF, one of the key points in Dubai/UAE’s gold buying calendar.

Onus on diamonds

Retailers plea for an import duty cut also has to do with the realisation that fundamental changes need to be made in the local gold and jewellery trade. The most important is to gradually shift buyer focus towards diamond jewellery.

Anil Dhanak of Kanz Jewels believes changes need to be made to retain UAE's status as a shopping destination for gold. Image Credit: Gulf News Archive

“Margins on pure gold jewellery have historically been thin - that’s why Dubai built its reputation as being the best spot to buy gold from,” said Anil Dhanak, Managing Director of Kanz Jewels. “Much of the jewellery brought into the country and reaching retailer outlets are imported, especially diamond jewellery.

“Now, removing the 5 per cent import duty can thus be a significant boost in lowering retail prices and boosting demand.”

All in the numbers

Currently, 90 per cent of diamond jewellery at most local outlets are imported, according to market sources. “If the market wants to shift from totally relying on periodic gold sales, then diamond jewellery has to be made more accessible,” said Abdulsalam.

“In a typical diamond jewellery piece, 60 per cent of the value comes from the diamond and value additions, and 40 per cent from the gold component. In gold jewellery, 90 per cent of the value derives from the gold itself and the rest from value addition. The making charges on gold jewellery tends to be in the 1-2 per cent range.

“When gold prices shoot up, it’s not just shoppers who get affected. UAE jewellery retailers are also facing issues. The future of Dubai’s jewellery sector cannot be built on gold alone - diamonds need to be there. And it would be a big help if the import duty is scaled back.”

Gold prices retreat, but for how long?
Even if Friday’s killing of an Iranian general and the subsequent flare up in Middle East tensions hadn’t happened, gold prices would still have been under pressure to go up. At the start of the year, the smart money was on it breaching $1,600 an ounce and then heading to $1,700 at some point during the year.
That the $1,600 mark was reached - however briefly - within the first 10 days of the year was the big surprise. “A level of $1,600 could be the new reality,” said Abdulsalam K.P. of Malabar Gold & Diamonds. “For shoppers so used to $1,450 levels for the better part of six years, the new reality would be quite the shock. It will take some getting used to. Hopefully, geopolitical tensions will reduce in intensity after the terrible first 10 days of 2020.”