Residents swap jewellery for bars

With gold prices remaining extremely volatile over the past few months, investment demand for gold has taken off even as jewellery sales remain subdued.

According to World Gold Council data, customers in the UAE are according more attention to gold as an investment option, with demand for gold bars and coins in the country rising 12 per cent year-on-year in the third quarter of 2011 even as demand for jewellery plunged 24 per cent during the same period.

The increase in gold as an investment has been a constant feature in UAE’s demand trends this year, with demand for gold bars and coins rising 21 and 6 per cent y-o-y in the year’s first and second quarters, respectively. In contrast, demand for jewellery rose 5 per cent in the first quarter but declined 1 per cent in the subsequent quarter.

Overall, UAE’s investment demand for gold (in terms of gold bars and coins sale in tonnes) is up more than 12 per cent in the three quarters this year compared with the same period of 2010, while jewellery demand is down by 5.25 per cent (in tonnes) during the same period.

It must be recalled that gold made its all-time high of $1,920.30 per ounce on September 6, but has since declined and is currently trading at around $1,700/oz levels. Anecdotal evidence suggests that while jewellery demand is back on track in the ongoing quarter, investment demand has accelerated further as customers seem to believe that the current decline in gold prices is temporary.

“Traditionally, we have more women customers at our outlets,” said the manager of a large gold retailer’s outlet in Dubai’s Mall of the Emirates, who requested anonymity as he is not authorized to talk to the media. “Men of course accompany their wives or other women relatives, and basically assist in the decision-making and payment process,” he said.

“In the past few months, however, I have noticed an increasing number of men walk in, without their spouses, and enquire about current gold rates and eventually buy gold bars or coins,” he said.

Trends in the UAE are in line with global patterns, with worldwide jewellery demand falling 10 per cent in the most recent quarter, while investment demand for bars and coins surged 29 per cent.

Globally, gold sales in the third quarter of 2011 rose 6 per cent year-on-year to 1,054 tonnes, worth a record $57.7 billion, data shows. The World Gold Council attributed this increase, despite record prices, to an unprecedented rise in investment demand.

“A strong rise in investment demand drove the growth in overall demand, as investors across the globe sought to protect their wealth, diversify their risk and benefit from gold’s strong returns,” WGC said. “Jewellery demand contracted in the face of record gold prices and challenging economic conditions,” it added.


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