Demand destruction: UAE gold sales plunge 22%

Gold sales in the UAE plummeted 22 per cent in the third quarter of 2012 compared with the corresponding period of last year, latest data from World Gold Council (WGC) shows.

While gold sales in Q3 2011 stood at 11.1 tonnes, it dropped to 8.7 tonnes in the most recent quarter, reflecting the demand destruction in the yellow metal due to the ongoing uncertainty.

Jewellery demand in the UAE saw a decline of 20 per cent in Q3 2012 over Q3 2011 while investment demand for gold coins and bars slumped 28 per cent in the same period, WGC data shows.

In dollar terms, the demand destruction was an even steeper 24 per cent, with gold sales in value terms plummeting to $462 million (Dh1.7 billion) compared with $607m (Dh2.23bn) in the year-earlier period.

In value terms, jewellery demand was down 22 per cent, from $449m (Dh1.65bn) to $351 (Dh1.29bn) while investment demand for coins and bars was down 30 per cent, from $159m (Dh585m) to $112m (Dh411.4m) in the period.

Demand trends in the UAE are in line with global trends, with worldwide sales dropping 16 per cent in the period, but mostly on the back of a 30 per cent decline in investment demand while jewellery demand slipped just 2 per cent globally.

While demand in most countries across the world saw a decline, gold-hungry consumers and retailers in India took the opportunity offered by relatively low rates and stocked up on the yellow metal, with gold demand up 9 per cent in the period, contrary to global trends.

Even Greater China (including China, Hong Kong and Taiwan) saw an 8 per cent slump in gold demand over the period.

Quarter-on-quarter, however, global gold demand improved 10 per cent due to relatively low prices, data shows.

“Third-quarter gold demand was up 10 per cent on the previous quarter but 16 per cent lower than record year-earlier levels,” WGC said in its report. “In value terms, demand was worth $57.6bn, 14 per cent below Q3 2011.”

According to WGC, the reasons behind the rather dramatic drop in demand are the “extraordinary levels of demand witnessed during Q3 2011” as well as the “subdued activity across the asset spectrum for much of the period (a combination of summer doldrums and a general sense of uncertainty among investors) and slowing inflation in a number of countries.”

The WGC report maintains that despite the US-dollar gold price rallying during the latter half of the quarter, “the initial price consolidation created hesitation among investors.”

Indeed, the price of gold dropped to a one-year low of around $1,535 per ounce in early June, which led to a slowdown in investment demand. “Investors continued to buy gold at historically high levels, but investment demand was down from particularly high levels seen during the same period [Q3] in 2011,” maintains WGC.

“The most significant contribution to the fall in gold demand came from the drop in bar and coin investment,” the WGC report states. “This was largely reflective of a lack of strong inflows in certain (notably Western) markets, rather than the emergence of any string profit-taking activity,” it highlighted.

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