Increased gold prices have had a negative impact on jewellery sales in both Abu Dhabi and Dubai
Gold sales fall sharply
Gold sales have slumped by as much as 80 per cent in Dubai and 25 per cent in Abu Dhabi so far this month, according to jewellers and trade associations. The price of gold has risen steadily in the past six weeks and tourist numbers have dropped because of the credit crunch. Sales of gold jewellery fell 80 per cent during the Eid holiday, said Haji Hasam Hingora, the manager of Kanz Jewels. "I haven't seen a situation like this for five years. The tourists are just looking, not buying. They say these prices are very high and they don't have enough money."
The lagging sales come after a peak in gold demand in October, when the price of the precious metal had fallen to US$720.35 an ounce, compared with a record high of $1,030.80 back in March. Spot gold is currently about $876 an ounce. People looking to park their cash in a safe investment rushed to buy bullion, gold coins and jewellery in October, with the UAE experiencing a 53 per cent increase in sales during the third quarter compared with the same period last year, according to figures from the World Gold Council.
But the tide has shifted back with the higher price. "Sales have fallen by 60 per cent in the past two weeks and it is getting worse and worse," said Oday Alfuhaid, who works at Al Bahar Jewellers in Bur Dubai. In Abu Dhabi, gold sales, including bullion, had dropped 25 per cent in the first half of this month compared with the same period last year, said the head of the emirate's retail gold and jewellery association.
"The rates have gone up even further, so it will be even more difficult now," said Tushar Patni, the chairman of Abu Dhabi Gold and Jewellery Group, an informal representative body for jewellers. "Sales will drop. They have dropped and they will drop." Sales in the capital were also down 20 per cent last month, he added. Dan Smith, a metals analyst with Standard Chartered Bank, said he was surprised by the weak demand because of the global surge to buy gold as a "safe haven".
"I think the consumer side has been hit slightly by the fact that the prices are high on a historical basis, although they are a bit lower than they were in March. But from an investor perspective, the investor demand is still pretty strong." Mr Smith predicted that the average price of gold next year would hover at about $875, but would hit $1,000 at some point during the year, driving consumer gold purchases down further.
"I'm not expecting [gold] consumption to be particularly strong [next year]," he said. Mr Hingora said his Dubai store was lowering prices to lure more customers. "We think the gold price has to maybe halve, otherwise many shops will start to close and this market will die." Mr Patni said Abu Dhabi jewellers had tried to attract more business with special offers, but the tactic was not working. "People are not bothered about promotions any more. There used to be times when you put up a raffle and things would change a bit, but not any more."
The smaller retailers in Abu Dhabi had been hit hardest, said Mr Patni. In recent months, many of the newer jewellers have had to sell their businesses, he added. "They can't sustain the daily expenses. The old guys are there, who have been there for generations. The smaller ones are getting squeezed." * with Reuters email@example.com