Dubai Gold
File picture of Dubai’s Gold Souq. Glittering storefronts and promotions are not proving enough to get visitors to buy. Image Credit: Gulf News Archives

Dubai: Even promotions are not helping UAE’s gold jewellery retailers as they once used to. With shoppers staying away, third-quarter are sales likely to end up anywhere between 8-15 per cent lower than in recent years. Some market sources believe it could end up even lower.

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Blame gold prices for this complete lack of demand, with the official Dubai gold rate at Dh171.75 for a gram of 22K. And if global market circumstances change further, it could even push all the way to Dh180 and over, market sources worry.

“Jewellery retailers can waive off making charges, offer gold exchange schemes and free coins — but when there is a more than Dh10 a gram difference between July and this month, no one can waive that off,” said Cyriac Varghese, General Manager at Sky Jewellery. “The third quarter is typically the lowest point for gold buying... but this year, it has dropped by a further 15 per cent or so.”

According to Abdul Salam K.P., Executive Director at Malabar Gold and Diamonds, the drop in demand is one of worst in recent times.

“Last year same time, prices were in the range of Dh140 a gram or so, and there was reasonable demand at those levels,” Salam, who is also on the board of Dubai Gold & Jewellery Group, said. “From those levels to now, the decline would be in the 20-25 per cent range. It’s proving to be a bad time for gold in the UAE.”

A defining week for gold

This could well be a make or break week for gold, the outcome of which will have a significant say on whether UAE gold shoppers are willing to commit.

Everything hinges on what one man — Jerome Powell, the US Federal Reserve chief — may have to say at the annual bankers’ summit in Wyoming, USA.

If he signals more US interest rate cuts, when the Fed meets late next month, then gold is in for another ride — a not so merry one for shoppers — on the higher side.

“When that happens, international bullion prices will be pulled to $1,600-$1,650 an ounce, and at those levels, local rates would cross Dh180 a gram,” said Salam. (For the record, the highest point for Dubai gold rate was Dh204 a gram back in 2011, when bullion was at $1,923 an ounce.)

More worries for local jewellery market

Jewellery retailers have lots to fret about than just the poor demand. Last month, a mid-sized retailer went bust, with money owed estimated at over Dh300 million. That others could be feeling the same pinch is never far away.

The market is abuzz about a big name in the precious metals trade facing an uncertain future. “We are keeping fingers crossed that the rumours may prove untrue,” said one source. “But if it happens, it will mean increased scrutiny for the overall trade from the banking industry.”

The next few days will thus be crucial for the local gold trade in more ways than one — two businesses going bust in two months will be an additional burden and that will only come at a higher cost.

Already, banks are asking for more

According to the source, some of that demanding is already visible. “Most retailers hedge against sudden price fluctuations,” he said. “But banks are telling the trade to keep more cash available for ‘margin calls’ if the price suddenly drops sharply. In that case, retailers stand to lose money and banks want adequate safeguards.

“But the way the retailers see it, gold is for now headed in only one direction — up. And I don’t think anyone wants to see more of their cash stuck in nonproductive use.”

No tourists to pick up the domestic slack

This being the height of summer, there are not many tourists lending support by buying gold and jewellery. This despite them being able to receive full VAT refunds on all such purchases.

“There are a few visitors from India, but so far we have not seen much demand coming from them,” said Abdul Salam K.P. of Malabar Gold and Diamonds. “I guess the high price is getting to them as well, and also contributing in its own way to making things more difficult for the sector.”