STOCK Dubai gold shopping
UAE resident shoppers had done bulk of their buying during the Diwali/Dhanteras week, when gold prices were around Dh187 levels. Image Credit: Ahmed Ramzan/Gulf News

Dubai: Gold and jewellery sales in the UAE have taken a direct hit from bullion prices surging to $1,770 an ounce levels within the last few days, which also meant that the Dubai Gold Rate has gained more than Dh10 a gram during the period.

Resident shoppers are clearly taking a ‘let’s wait’ approach to gold buying, said Abdul Salam K.P., Vice-Chairman of Malabar Gold & Diamonds. “From Dh184.50 a gram earlier this month to Dh201 right now for 22K has certainly brought out caution in consumers. Even tourist buyers are hesitating because of this quite unexpected jump.”

Shoppers will do well to retain that caution in what could have been a boom phase for jewellery sales in the UAE, especially those from tourists and bulk ones made in relation to wedding parties. The wedding-related sales will still happen, but retailers might find the size of these could be lowered after this sort of price gain.

As for UAE resident shoppers, they had already bought a sizeable volume during the Diwali/Dhanteras week around October 24. Gold prices had been around Dh187 levels, and it was more than enough to set off the biggest round of gold sales in three years. (Some retailers say it was even better than in 2019, even though Dubai Gold Rate during Diwali 2019 was at Dh172.) Retailers, too, were taken by surprise at the speed with which gold has shot in these 3-5 days, after, at one point, it looked more likely that there was a real chance bullion could slip to $1,600 an ounce. (The lowest rate for bullion in recent weeks was around $1,624 and this was the lowest it had touched in more than three years. In comparison, gold during Diwali 2021 was around 204 a gram and in 2020 at Dh215.)

“A $150 jump - or Dh15 a gram in local rates - in days will be enough to put off any shopper wanting to add to his gold holdings,” said a retailer. “We have seen buyer resistance whenever gold crossed Dh200 a gram since 2020.”

Retailers suggest it would take more than special promotions or discounts on making charges to bring shoppers back. (However, some are still hopeful that visitors turning up in the UAE to head for FIFA World Cup matches might do some gold buying, too, at these elevated prices.)

What brought this on?

In two words - recession and investors. More signs of a worldwide recession setting in is turning investors’ attention back to gold assets. When investors and funds get back into gold, it’s always at the expense of shoppers.

Then there are the recession worries. Last week, the UK became the first economy to talk about actually slipping into a recession by the end of this quarter, and some of the other influential European economies, too, could follow.

When recession talks start, it again reinforces gold’s enduring status as the go-to asset in times of distress. During the 2008-10 financial crisis, gold prices soared all the way to $1,900 plus levels over heavy investor-led buying. (And then by 2015, it had dropped to just over $1,000 level…) Could a repeat happen?

“We recently commented on gold’s likely strong performance in low-growth and high-inflation (stagflation) conditions,” said John Mulligan, who heads investor relations at London-headquartered World Gold Council. “And these comments are highly relevant when considering the threat of a global recession too.

“With the prospect of stock markets falling as economic activity falters, our analysis suggests gold is likely to outperform. When recessionary impacts start to hit returns and weaken currencies, investors (and central banks) typically turn to gold as a safe store of value, offering them a degree of insulation from the downturn. The resultant elevated buying from the institutional investor market in particular is likely to be reflected in a buoyant price.”

And today’s $1,770 rates definitely would count as elevated.

Weddings are helping

Dubai’s credentials as the spot where high-profile weddings take place has been a boon for jewellery and luxury label sales in the UAE. It meant that all or much of the wedding associated jewellery buying typically takes place here. All of the leading local gold and diamond retailers have recorded sales to such clients in the recent past. (For luxury retailers, it has meant sudden demand for luxury bags and the like to be given to those invited for these weddings.) “Weddings are and will remain recession-proof,” said a jewellery retailer. “That means anyone wanting to buy gold will do so - whether the price is at $1,600 or $1,800.”