Dubai Gold Souk sales hit hard as five-year low takes the shine off safe haven metal

Gold, regarded as a safe haven in times of economic troubles, is being hammered by the prospects of a US interest rate increase, which may make the metal unattractive for investments.

Overall demand for gold jewellery in Dubai was down 8 per cent in the first quarter of this year. Ravindranath K / The National

At Dubai’s Gold Souk the mood mirrored the market yesterday.

As the price of the precious metal tumbled to a five-year low, traders complained about dismal sales that have plummeted by up to 70 per cent this summer.

Gold, regarded as a safe haven in times of economic troubles, is being hammered by the prospects of an interest-rate increase by the US Federal Reserve, which may make the metal unattractive for investments. Gold futures in New York fell 1.7 per cent to US$1112.7 an ounce in morning trading after plummeting 4.6 per cent in Asia earlier in the day.

The strong dollar, weak rouble and prospects of a US interest rate rise this year have taken the shimmer off sales in the Deira market that attracts hordes of tourists and investors alike.

“The Europeans are gone. The Russians are gone,” said Edwin Nicholas, an Indian sales manager at Paris Gems. “Only the Chinese are buying because they have money,” he added, pointing to a group of Asian tourists outside the gold shop.

The shop, which used to be staffed by nine sales assistants, is now down to five and Mr Nicholas does not expect the outlook to improve. Sales are down by more than 30 per cent this year compared to last year, he said.

The increase in Chinese, Indian and African tourists is not compensating for the loss of Russians and Europeans, who used to buy expensive designer jewellery.

The Chinese do not splash out as much, and tend to buy smaller items, he said.

Overall demand for gold jewellery in Dubai was down 8 per cent in the first quarter of this year compared with the same period last year, according to data from the World Gold Council. Globally, gold jewellery demand fell 3 per cent to about 600.8 tonnes, according to the non-profit organisation.

European buyers are shying away from luxury travel because of the effect of the Greek debt crisis on the 19-member eurozone area. In Russia, sanctions on the energy-exporting country and lower oil prices have hit hard an economy already suffering from a tumbling rouble.

The rouble has lost 60 per cent against the dollar compared to a year ago, while the euro is 21 per cent weaker.

“Europeans are a bit cautious in spending because of the currency, and economy and politics,” said Hiren Dhakan, a partner at Mashoom Jewellery, adding that business is down 30 per cent this summer compared with a year earlier. “I am afraid of low oil prices more than a stronger dollar because it affects general GCC spending,” he added.

Sales from GCC customers are down 40 per cent this summer due to lower oil prices, he said.

Brent crude is down to less than $60 per barrel from about $115 in June last year, as a stronger dollar lowers demand in Asia and Europe and excess oil supply affects global demand.

For Mohammed Azmi, a sales manager at Marhaba Jewellery, sales are down 75 per cent this summer versus last summer as Europeans, Russian and GCC customers stay away from the Gold Souk.

GCC customers now make up only 5 per cent of their customers, compared with 10 to 15 per cent two to three years ago.

“We are buying less gold, like 50 per cent less this year, compared with last year,” said Mr Azmi.​​

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