On November 5 alone, more than 2 tonnes of gold and gold jewellery got sold in the UAE, and of these bars and coins could have made up between 10-15 per cent. Image Credit: Gulf News

Dubai: Gold shoppers in the UAE were picking up 10-and 20-gram bars in “record” numbers this week and making full use of their VAT-free status.

On November 5 alone, more than 2 tonnes of gold and gold jewellery got sold in the UAE, and of these bars and coins could have made up between 10-15 per cent. Typically, sales of bars and coins account for 2-4 per cent of daily gold purchases in the UAE.

Even 1-Tola bars – that’s 11.66 grams of 24K gold – recorded significant demand during a week that marked the Indian celebrations of “Diwali” and “Dhanteras” and a peak period of the year for gold consumption. (This year’s Dhanteras was on November 5, which explains the spike gold sales had that day. In Dubai, 22K gold was at Dh140.25 on Thursday (November 8).)

Gold coins, which are usually in 4- and 8-gram formats, carry the 5 per cent VAT surcharge. But gold bars are deemed as “investment assets” and hence excluded. For shoppers conscious about their spending budgets, this matters.

“Instead of going for small-ticket jewellery purchases, where the gold component would typically be 15-16 grams, these shoppers are opting for bars instead,” said Abdul Salam K.P., Executive Director at Malabar Gold and Diamonds. “There’s an immediate saving of around Dh8 a gram that they would otherwise be paying as VAT.

“Since VAT came into effect, gold buying as an investment did come down significantly. What we are seeing now is these shoppers shifting from jewellery to VAT-free forms such as gold bars. Investment-driven demand for gold seems to be returning… at least it did this week.”

Tough going for jewellery retailers

The local gold retail sector has had an extremely difficult year, with shoppers put off by the extra payouts and the fact that gold prices had been trending higher for the better part of the year. The July to end September period was particularly troublesome with slightly over 6 tonnes of gold and gold jewellery sold in the UAE, according to World Gold Council estimates. That compares with the 10 tonnes plus quarterly sales have been averaging in recent years.

In fact, so far this year, there have only been three days when gold sales went past the 2-tonne a day mark. The first was on April 18, which coincided with that other key Indian celebration of “Akshaya Trithiya”, and then again during August 10, when prices of 22K slipped from the Dh140’s to below Dh135 a gram.

“Gold bar sales this week have been exceptional,” said T.S. Kalyanaraman, Chairman and Managing Director at Kalyan Jewellers. “On Dhanteras (November 5), we had 24K gold bar sales at our UAE stores up by 66 per cent over last year. Even gold coin sales gained 32 per cent year-on-year.”

Retailers such as Kalyan and Liali also had special Diwali-focussed campaigns running with leading local banks related to credit card purchases.

As for smaller jewellery retailers, their share of bars and coins sold during the week could be even higher. Many of these outlets are operating on bare minimum inventory and shed their high priced jewellery. These retailers, in particular, would welcome any upturn in demand for bars and coins.

Buy 1-Tola bars here, melt and then take them to India

Some gold buyers in the UAE are getting savvy with their 1-Tola bar purchases. They buy these here and “get goldsmiths to melt and convert them into chains at a minimal cost,” said Abdul Salam of Malabar Gold and Diamonds. “They can take these gold chains to India without attracting customs duty, unlike bars and coins that are subject to it.”