Dubai’s commodities exchange posts record volumes during post-Brexit turmoil

Volatility in precious metals and currencies markets helps to boost volumes on Dubai commodities exchange.

Dubai, United Arab Emirates, December 18, 2015: People browse in a shop in the Gold Souk area of Deira in Dubai on December 18, 2015. Christopher Pike / The National

Trading on the Dubai Gold & Commodities Exchange (DGCX) reached an all-time high in the first half of this year, with Britain’s Brexit drama boosting demand for gold.

The derivatives bourse said more than 9.5 million contracts were exchanged in the first six months of this year, an increase of nearly 50 per cent on the same period last year, the exchange reported yesterday.

The shock over Brexit led to the exchange having its most active day ever on June 24, when the result was announced. A total of 150,750 contracts were exchanged through the market on that day with a combined value of US$3.55 billion.

“Brexit, an event of seismic proportions, has triggered extreme volatility in world markets over the weeks running up to vote and result days,” said Gaurang Desai, the chief executive of the exchange.

He said the daily volume records achieved on DGCX had proved the exchange was “now considered to be an extremely important trading venue” when such market movements take place.

Although precious-metals trading has been particularly active during the first six months, with the amount of gold contracts changing hands increasing by 104 per cent, trading in all asset classes increased.

Currency trading was up by 46 per cent led by fluctuations in the value of the Indian rupee, while trading in British pound and euro futures increased by 163 per cent and 121 per cent respectively – again due to Brexit speculation.

In terms of energy trading, activity in the hydrocarbon segment grew by 389 per cent in the first half of the year.

Trading in gold soared during and after the UK’s referendum. According to Ole Hansen, the head of commodity trading at Saxo Bank, the gold price increased by 6.2 per cent in the week following Brexit, reaching two-year highs of $1,334.80 per ounce by the time markets closed last Friday.

It has continued to rise since, standing at $1,351.71 per ounce by mid-afternoon yesterday.

“Investor demand for gold through exchange-traded products has risen by close to 50 tons since the vote,” he said.

The fallout from Brexit may have been beneficial to commodities traders but the broader consequences for the global economy look much more glum. A study by FTI Consulting of 100 institutional investment firms with combined assets of more than $8 trillion, found that 67 per cent of the companies believed Brexit would trigger a recession and 98 per cent believed that economic conditions would worsen in the near term following the vote.

About 78 per cent expected a downturn across Western Europe but only 4 per cent believe it would affect North American economies.

In the UAE, meanwhile, Abu Dhabi Commercial Bank said that it expects non-oil GDP to weaken following the vote. The bank’s chief economist, Monica Mallik, cut its non-oil GDP growth forecast to 2.3 per cent for this year, down from 2.5 per cent.

A weakening of the UK economy and its currency “will impact key non-oil sectors such as tourism and real estate” in the UAE, she said. “There are also signs of greater job losses in the UAE (especially in Q2) than we initially expected, albeit substantially lower than the levels seen in 2008-09.”

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