Run on gold in Dubai as investors shun stocks and property

The famous Dubai gold souk is running very low on gold during the Indian Festival of Lights, Diwali as investors shun local the local stock market to buy gold at low prices. The sudden halt to the local real estate boom has also left investors short of options. 

Jewelers told Gulf News that they are not hoarding gold. But that seems an inescapable conclusion with the retail price of gold matching international spot prices which seem completely out of balance with the true demand situation down in the gold souk.

More than 50 per cent of the population of Dubai comes from India, so the Diwali celebrations – where gold is the traditional gift – are taken particularly seriously. Normally this is a peak season for the jewelry trade but shortages have not been reported before. 

People are taking advantage of the fall in the price of gold which has been linked to sell offs by hedge funds during the current global financial crisis. Some are also concerned about the inflation outlook as governments around the world inject trillions of dollars in the global economy.  Most just see a good deal on gold and are taking it.

Real estate collapse

But there is definitely a rejection of the local favorite alternative investments – stocks and real estate. The Dubai Financial Market is showing huge losses this autumn. The real estate boom has also collapsed with off-plan sales at a complete standstill and the secondary market very slow and prices coming off their recent highs.

Dubai is known as The City of Gold and has had a long association with the metal. Indeed, some 20 per cent of the world’s physical gold is said to be traded here. 

It says something for the versatility of this regional trading hub that it can jump so effortlessly from one booming asset class to another, and this while the price of gold is actually falling. However, it hardly requires a PhD in economics to realize that this rush to buy gold and pressure on supply is the first sign of a boom in the price. 

Gold prices

Once the sell-offs in the futures market by the hedge funds are done – and how many days or weeks can that be away – then gold prices will boom, and miraculously gold will then become available in the gold souks of Dubai, albeit at a much higher price.

Shortages of physical metal in the Dubai souk mean that physical precious metal shortages have moved beyond bullion coins and silver. Now the yellow metal itself is running low in a key trading centre.  Higher price levels can only be around the corner.

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