Dubai: The recent crash in the global price of gold, the largest drop in five years, could prompt some retailers in the UAE to hoard some of their stocks of jewellery, bars and coins, an analyst said.
Rolf Schneebeli, CEO of Gold Services AG, a gold and investments advisory firm in Dubai, said that most jewellers are not “hedged against” a gold price decline. This means that when the prices drop, they are likely to incur some losses, unless they sell enough gold to make up for it.
“For retailers, I can imagine that they are now not really eager to sell, but certainly would not say [they will hoard everything],” Schneebeli told Gulf News.
“Essentially, with the price decline, their current stock has been devalued. However, as the sales turnover will increase, they will make up for it over time,” Schneebeli said.
The global price of gold dropped to as low as $1,088.05 an ounce, its lowest since March 2010, prompting retailers to slash their prices. As of Monday, gold jewellery’s retail price in Dubai was about 7 per cent less compared to only a month ago.
Gold jewellery shops in the UAE are anticipating that demand for gold jewellery will increase significantly over the next few days as consumers are raring to hit the shops to score some new bargains.
"If the price stays where it is for about a week, we will see a nice increase in turnover," said Schneebeli.
Some retailers contacted by Gulf News, however, assured they are not holding on to their stocks, citing that gold fans in the UAE can buy as much as they want.
"Sky is the limit. We have a lot of stocks," said Joyce, a salesperson at a jewellery store in Dubai Gold Souk.
Mohammad, another seller in Al Barsha, said they have enough supply of gold jewellery to meet a surge in demand.
"We have too many items. You can buy anything. No problem," he said.
While the other retailers may not be eager to sell, those who trade gold on a wholesale basis are not going to feel any negative impact from the gold price decline.
"The wholesale traders are typically quite well protected in cases of dropping prices as they hold mostly unfixed gold for financing and they tend to be short of gold all the time. This should give them an extra profit," Schneebeli added.
Karim Merchant, group CEO and managing director, Pure Gold Jewellers, said the most vulnerable are retailers who have a “fixed gold inventory price”.
“For a jewellery retailer who has not based his inventory on a fixed-price basis, the price changes do not matter, as his only concern is the margin on labour cost, which is the case for us. On the other hand, for a retailer who has a fixed gold inventory price, the current situation can cause a dilemma,” Merchant said.