Dubai's Changing Gold Market

How the Middle East's gold market is changing amid the financial crisis...

UNTIL NOW Dubai has been renowned for its gold jewelry shops, notes Commodity Online, earning it the name City of Gold.

Dubai's gold jewellery shops offer tax rebates to tourists, and people from across the globe throng this place to Buy Gold. But since the financial crisis began, things have been changing fast. Soon Dubai may shift from relying on retail sales towards increased gold exports and investment-driven demand.

A hint of this switch came when the Dubai Multi Commodities Centre (DMCC) said its gold trading through Dubai reached $14.69 billion in the first half of 2009, an increase of 12% from $13.07 billion during the same period in 2008.

In the first six months of 2009, a total of 300 tonnes of gold was imported into Dubai, an increase of 13% compared to 265 tonnes in the same period of 2008. However, gold exports from Dubai in the first half of the year reached 213 tonnes, up 19% from 179 tonnes in 2008.

Thus the greater increase in Dubai's gold trade comes from exports, while investors are also turning to gold – choosing it as a safe-haven, inflation-hedging instrument – while traditional jewelry buyers are put off by near-record prices and a lack of disposable cash.

The difference between imports and exports for the first half of 2009 was 87 tonnes compared to 86 tonnes for the same period in 2008, suggesting that net imports to Dubai were stagnant. Retail jewelry sales have reportedly collapsed as much as 40% from last year's levels.

Dubai's gold markets and shopping malls are long-established markets for Gold Bullion as well as wholesale and retail jewelry sales. The trade is fuelled by strong demand from the Arab world and India, the world's No.1 gold market, along with Western tourists seeking bargains.

Nearly 90% of total gold "off-take" in the region is in the form of jewelry. So weakness in this sector – down 7% – has largely offset strong growth of 139% in retail Gold Investment.

Across the Middle East, gold consumers make up more of the market than investors and rather than Buying Gold, cash-strapped consumers are selling it. Even so, Dubai's latest surge in the gold trade – though export and investment driven – confirms the City of Gold's resilience despite the difficulties faced by the jewelry retail trade.

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