Dubai: The UAE’s gold shoppers seem to have been convinced now is the time to get back to buying again.
The local jewellery trade recorded the highest single-day sales this year on Friday (August 17), selling between 600-700kg with the official Dubai Gold Rate at Dh133.75 a gram for 22K, the lowest so far this year.
Sales continued to be brisk on Saturday (August 18), and offering some relief for retailers who have endured an extremely challenging year, according to market sources.
The majority of those who were buying over the last weekend did so for “gold as invest-ment” purposes — 4/8 gram coins and 10/20 gram bars saw significant demand. On the jewellery side, it was more for machine-cut pieces where the manufacturing charges tend to be lower.”
- Abdul Salam K.P. | Executive Director, Malabar Group
On average, daily sales in the trade have been around 150-200kg, and well below the 300-400kg attained during 2014-15.
“There was a lot of pent-up buying happening over the last weekend, with shoppers convinced that prices have dropped low enough,” said Abdul Salam K.P., Executive Director at Malabar Group. “There was only one other day this year when UAE gold sales went above 600kg, and that was on June 29 when the rate had dropped to Dh142 after being in the Dh150 range.”
“The majority of those who were buying over the last weekend did so for “gold as investment” purposes — 4/8 gram coins and 10/20 gram bars saw significant demand. On the jewellery side, it was more for machine-cut pieces where the manufacturing charges tend to be lower. Demand for designer gold jewellery or diamonds has not had any upturn.
“At the current gold levels, the UAE jewellery business should continue to see better than average sales numbers in the coming days. That pent-up demand — for small-ticket purchases — is what will drive this.”
These were the buyers who had been largely absent from UAE’s jewellery shops over the last eight months. During this period, gold prices had been stuck in the Dh150 a gram range, with the highest rate recorded on January 25 when it was Dh155.
Last week could have been even better for UAE gold sales had it not been for the floods that devastated the southern Indian state of Kerala last week. Obviously, those expats from there had far more pressing issues to consider than buying gold.
UAE gold sales recorded one of its weakest performances in the first six months, with shoppers staying away because of the high bullion prices and sentiments related to the 5 per cent VAT on jewellery.
But in the last two months, gold has come under pressure, slipping first to Dh140 levels and then to under Dh135. (It opened at Dh134 a gram on August 20.) Can prices slip below Dh130? Many in the local jewellery trade believe it is within the realms of possibility. And they are also keeping an eye on the dollar, when they state their expectations for near-term gold rates.
“This time, global investors have chosen the dollar as their safe-haven rather than gold, which is putting pressure on gold prices,” said Cyriac Varghese, General Manager at Sky Jewellery. “With more interest rate hikes in the US, investors are likely to stick with the dollar. If so, this pressure on gold is unlikely to go away, and it wouldn’t then be a surprise if gold slipped to Dh130-Dh131 a gram. For buyers here, it would be an incentive to commit to gold rather than convert their dirhams into rupees or other currencies that are slipping against the dollar.”
Prices to drop
The lowest that gold had dropped between August 2013 and now was Dh120.15 on December 18, 2015. No one in the trade, however, is expecting prices to drop to those levels.
But sources say that if daily sales can push back to the 300-400kg, it would give jewellers some respite. Even more of single-day sales spikes of 600kg and more would be welcome.
But what the trade is hoping for is a change in sentiments. “Unlike in previous upturns for the gold business, buying now is totally driven by local consumers,” said Salam. “The tourist buying has not been there for a while now.
“So, if we have more days like August 17 and June 29, it can provide for some glitter for the gold and jewellery sector.”
Much will then rest on whether gold can fall to Dh130 or even breach it. If that were to happen, it could be the biggest sales trigger for UAE gold buyers. Until that happens, a level of Dh133-Dh135 could still make a difference.