Rising gold prices held back jewellery sales during the second quarter of the year, but coming festivals are expected to bring a much-needed boost.
Gold prices put choker on sales
Rising gold prices held back jewellery sales during the second quarter of the year, but coming festivals are expected to bring a much-needed boost. The latest figures from the World Gold Council showed 16.6 tonnes of gold were sold across the UAE in the June quarter, down from 19.5 tonnes for the same period last year. Ajay Mitra, the council's managing director for India, the Middle East and Turkey, said the slide came from a high gold price and a difficult economic environment.
But the coming Diwali and Eid festivals, which are traditionally big buying periods for gold, will help to boost sales and temper rising prices, Mr Mitra said. "I think in the short term we will definitely see a spurt in demand," he said. "The challenge will be the post-festive period. If there is good news about the economy also recovering then there will be some positive signs for the consumer to read rather than to just look at the price."
With the high price of gold, which surged to a record US$1,261 an ounce on June 28, UAE consumers bought US$639 million (Dh2.34 billion) worth of gold jewellery in the second quarter compared with $578m in the same period last year. Global demand for gold in the second quarter rose 36 per cent to 1,050 tonnes, mainly driven by investments such as exchange-traded funds, the council said. Total gold demand in the second quarter was worth $40.4bn, up 77 per cent from the year before. Gold used in that period for investments and industrial purposes rose by 118 per cent and 14 per cent respectively.
But demand for gold jewellery, which represents most of the demand in the Middle East, slipped by 5 per cent. "It's because of the general conditions in the market. It's still not improving," said Tushar Patni, the owner of Ajanta Jewellers and a member of the Abu Dhabi Gold and Jewellery Group. "And it's mainly related to the gold price. It's been very high." The average gold price for the second quarter was $1,196.74, 30 per cent higher than in the second quarter of last year, the council said.
Saudi Arabia was the one bright spot in the region where the demand for gold rose both in weight and value, by 5 per cent and 37 per cent respectively compared with the same period last year. Mr Mitra said sales were more resilient in the kingdom due to its large local population, which is less price sensitive. The spot gold price rose to $1,237.50 an ounce yesterday and analysts expect it to increase further amid slowing global economic recovery.
Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said the price was likely to stay between $1,175 and $1,250 for the rest of the year. Mr Unni said he expected the high prices to affect consumer buying patterns but the festivals would help to boost sales. "We increasingly see many shifting to diamonds and the 18-carat gold due to this price spike," he said. "In the coming months there are a host of festivals lined up in the Middle East and in India, such as Ramadan, Navarathri, Diwali, et cetera. This should support gold from any major slide."