Demand for gold jewellery in the UAE remained flat in the first quarter of the year as consumers bought the precious metal before the full effect of a 5 per cent import duty kicks in, according to a World Gold Council report.
The UAE started in January slapping a 5 per cent import duty on gold jewellery, a move that is expected to lead to higher prices and subdued consumer demand.
“What we saw in the first quarter was consumers quite keen on buying before the 5 per cent import duty actually fed through into higher prices,” said Alistair Hewitt, head of market intelligence at the World Gold Council, the London-based market development body.
“The reality is that the 5 per cent import duty will eventually lead to higher prices and probably will end up having an impact on consumers.”
UAE jewellery demand reached 15.2 tonnes in the first quarter, nearly flat from the 15.3 tonnes in the first quarter of last year. The UAE’s flattish demand was in line with the trend in the Middle East, which remained nearly unchanged at 54.6 tonnes, compared with 54.8 tonnes in a year-earlier period.
The biggest drop in the region was recorded in Egypt, where the currency depreciation since the pound was floated in November has hit consumer demand.
Egypt’s gold jewellery demand plunged 14 per cent to 5.7 tonnes from 6.6 tonnes a year earlier.
“There is also quite high levels of recycling [in Egypt] partly because people want to get their hands on cash,” said Mr Hewitt. “Consolidation in the industry in Egypt is the main trend.”
In Saudi Arabia low oil prices, higher living costs, salary cuts and delayed payments to contractors were among the factors that dented demand, which fell nearly 13 per cent to 11.3 tonnes from 12.9 tonnes a year-earlier.
The dip in demand in Egypt and Saudi Arabia was offset by a near 27 per cent increase in Iran to 12.9 tonnes from 10.2 tonnes, thanks to an improved economy.
Total bar and coin demand in the Middle East surged about 48 per cent to 9.9 tonnes albeit from the low base of 6.7 tonnes, led by higher demand from Turkey.
Gold is a major money earner for the UAE.
The total value of gold trade in the UAE grew 13 per cent to Dh244.3 billion last year from Dh217bn a year earlier, according to customs figures. Trade in gold and jewellery reached Dh65.6bn last year, accounting for 27 per cent of the total gold trade.
Globally, overall gold demand fell 18 per cent to 1,034.5 tonnes from the first quarter of 2016, which was the strongest first quarter on record. Slower inflows of exchange traded funds (ETFs) and lower central bank demand also contributed to the decrease.
Overall jewellery demand in the quarter rose 1 per cent to 480.9 tonnes versus 474.4 tonnes in a year-earlier period as higher gold prices impacted sentiment.
Gold prices were up on average 3 per cent in the first quarter of this year to US$1,219.5 an ounce from $1,182.6 an ounce.
Gold prices firmed this year as bullion is regarded as a safe-haven asset class in times of economic and political turmoil, which is sweeping the globe.
Meanwhile, central banks had a lacklustre appetite for gold in the first quarter, particularly China, which put on hold its purchases during the period as it focuses on stemming pressure on its foreign exchange reserves.
Flows into ETFs stood at 109.1 tonnes, a third of the 342.1 tonnes in the first quarter of last year, which reflects the unusual strength of inflows of last year rather than weakness in the first quarter of this year.
dalsaadi@thenational.ae
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