Q1 Dubai gold sales up on depressed 2009 but still rather weak
Posted on 07 April 2010 with no comments from readers
A combination of the Dubai real estate crash and an exodus of construction workers kept gold demand down in Dubai last year, and figures for the first quarter from the City of Gold show a 30 per cent rise in demand for retail gold that has not yet fully compensated for the decline last year.
Retailers also report a resistance to higher gold prices in the souk, although there has been a general slump in luxury sales across the city. Jewelry sales volumes are still running well down on pre-crisis levels.
Credit crunch
Dubai was particularly badly hit by the global credit crunch in September 2008. It brought a runaway construction boom to a screeching halt. Credit dried up. Contractors downed tools. Some 400,000 construction and real estate workers went home.
Construction activity in the city is probably around a fifth of its pre-crisis levels, according to industry estimates. Now admittedly many of these employees were lowly paid and unlikely to buy gold but there was a professional cadre who led the boom that has also gone.
Besides the knock-on impact of a sudden halt to so many construction sites is considerable, quite apart from the exodus of people. Demand for all types of ancillary services has been hit, and not surprisingly once confident local consumers are hoarding cash and not buying jewelry.
Traders still think price volatility is a key factor in Dubai. And in a recession retail customers are proving slow to adjust to what may be a permanent rise in the gold price to well over $1,000 an ounce.
Past precedent
If the history of the past decade is any guide then when buyers in the gold souk get used to higher prices they will return to their traditional buying habits.
Higher oil prices and a stronger local economy will help. This year tourism has picked up sharply in Dubai and this is helping many businesses to pull themselves out of the recession of 2009.
All those cruise ships docking at the new terminal are conveniently close to the old and new gold souks of the city, and jewelry with its 15-20 per cent mark up to the gold price is a very popular souvenir from Dubai.
