Record high prices are putting pressure on gold demand growth in the Gulf Arab region, but the precious metal is expected to maintain its lustre as market turmoil stokes buyers' interest.
Gold's surge to multi-year highs has scared buyers in many parts of the world and left them to watch helplessly the blistering rally that shows no sign of abating.
It has doubled in just two years. Spot gold hit a lifetime high of $936.50 an ounce on February 1.
Analysts say growing concern about the health of the US economy and recent falls on Gulf bourses are boosting interest in gold.
"Worries about the future of the global economy have encouraged some buyers to divert or rather keep their attention on gold," one Gulf-based analyst said.
"This should keep the Gulf demand for gold steady this year ... if the situation was different I would have expected a reversal of the growth we saw in 2007."
Fears of a global credit crunch have also revived bullion's long-dormant safe-haven status.
"Jewellery demand is likely to remain stable, but we are now seeing a surge in investment demand due to growing apprehension in the global financial markets," said Ian MacDonald, executive director of gold and precious metals at state-owned Dubai Multi Commodities Centre.
According to the industry-funded World Gold Council, gold demand in the Gulf Co-operation Council (GCC), a loose gathering of Arab states, stands at about 260 tonnes a year.
Last year, GCC's gold demand rose by about 20 per cent as the economies of the world's largest oil exporting region expanded, WGC said.
Gulf Arab women are vigorous buyers and are traditionally given gold jewellery by their husbands when they marry. Many still see the yellow metal as financial insurance in case the bride's family faces financial crisis or she gets divorced.
"Those women, plus other people who buy gold and keep it hoping to make a profit when prices rise, are still uncomfortable with the current prices," Ahmed Khamis, a Dubai-based jeweller said.
"Some buyers want prices to stabilise before even buying a couple of bangles," he said.
But while gold remains a hot commodity, some are doubtful whether demand for gold will be robust.
"With the current sentiment on gold prices, I don't think we will see an increase in demand. The best case scenario would be Gulf demand matching the same level of last year," said Moaz Barakat, managing director of the WGC in the Middle East, Turkey and Pakistan.
But traders say growing acceptance of higher prices, and traditional attitudes, which are standing up to financial market turbulence, are likely to lift gold buying in the region in the second half of the year.
"Yes, buyers may take long time to adjust to the high volatile prices, but by the second half of 2008, demand will pick up," said Rajiv Nair, Vice-President at Vision Commodities Services.
"This has been the case with previous heightened price volatility." (Reuters)
Sky-high prices cap Gulf gold demand