Dubai gold retailers are hoping for a better 2014 after grappling with the biggest slide in prices last year in more than three decades.
Many consumers stalled buying of the yellow metal in expectation of a further slide in prices.
But the fall also prompted some to upgrade their purchases, snapping up 24-carat bars at what they believe will prove bargain prices.
With prices rising in the first trading week of this year by 2 per cent, retailers hope signs of a tentative recovery can translate into sales gains. The spot price of bullion was up 1 per cent at about US$1,237 an ounce on Friday.
“There’s been a mixed reaction in the market this year,” said Bhavesh Dhakan, the owner of Dhakan Jewellers in the gold souk in Dubai Mall. “Initially, there was panic to buy as prices dropped but then people started holding off purchasing to allow prices to come down.”
Mr Dhakan said sales were still up 5 to 8 per cent last year from the previous year. Although the rate is positive, the rise is short of the gains of previous years after gold prices rocketed as a hedge against an uncertain global economy and inflationary fears. Prices surged more than 600 per cent from 2001 to a record high of $1,920.30 an ounce in September 2011.
Last year marked an abrupt end to that trend as gold finished the year down the most in 32 years. Gold shed nearly 30 per cent. Prices collapsed as the economic outlook brightened and the US Federal Reserve announced its plan to end ultra-loose monetary policy. Investors had piled into the bullion in greater numbers in 2008 on the expectation that low interest rates from the Fed and other central banks would fuel inflation.
One cause of the bear market was investment funds dropping huge quantities of gold from their portfolio. As that trend quickened demand shifted from derivatives trade – backed up by large 12.5 kilograms bars stored in vaults in London, Chicago and Switzerland, among other places – to physical trade.
Dubai and other gold commercial centres benefited as individual investors began snapping up smaller quantities, both more affordable and easier to transport and store.
“People have gone for higher value items like 24-carat gold bars as an investment. They’re very popular with local Indian and Pakistan investors,” said Harsh Joshi, the manager of the gold souq in The Dubai Mall’s branch of International Jewellery. “Compared to last year the price is very good and we have benefited from that.”
With the Fed planning to start tapering its economic stimulus this month, gold could have further to fall this year. But some analysts are forecasting a recovery in the latter part of 2014.
It will be a year of “consolidation” for gold, Ole Hansen, the head of commodity strategy at Saxo Bank, wrote in a report released last month. “We could see some additional weakness during the first quarter as the taper theme and some potential dollar strength erode support but later in the year, gold could well recover as some of the negative drivers fade and finish up on the year.”
Some retailers are not so optimistic. “Gold will go up a little in 2014 but I don’t think it will be a significantly better year. We are in a down cycle but 2015 should be a better year,” said Vijay Dhakan, the general manager of National Jewellery in the old gold souq in Deira.
“In 2013 business was down on 2012 as then the price was higher and confidence was higher.”
tarnold@thenational.ae