Jewellery buyers take a shine to gold again

Buyers of jewellery are once again flocking to gold, experts at the World Gold Council (WGC) say. As gold prices peaked last year, buyers delayed major purchases. That fall in demand for gold in the form of jewellery led to a recent slight dip in prices. "There is a potential weakness of gold prices now, but once the physical demand returns, prices could go higher again," said Pradeep Unni, an analyst at Richcomm Global Services in Dubai.

Last year, investor demand pushed the price of gold to record levels, spooking jewellery buyers and prompting consumers to flood the scrap market to get maximum value for their pieces. Anaemic economic growth further hampered demand for gold jewellery. As prices soared above US$1,200, global demand for gold jewellery fell 11 per cent from 2008; in the Middle East, demand for gold as jewellery and as an investment instrument fell by a combined 32 per cent. Jewellery sales, which make up the bulk of Middle Eastern buying, were down 29 per cent.

Mr Unni believes that gold prices, currently at about $1,128, can easily make their way towards $1,160 or even $1,180 this year. As consumers adjust to the higher prices, buying should return, he said. A senior executive of the WGC was upbeat. "Normally, it takes more time [for the region] to adjust to new prices, so we're confident that once consumers adjust themselves to the $1,000-plus prices, we'll see the market coming back," said Anan Fakhreddin, the managing director for the WGC in the Middle East and Turkey.

He added that he was "confident" this year would be better and pointed to "tentative signs" that gold demand in the Middle East had been picking up this month. Another reason for low demand last year, particularly in the Middle East, was fewer tourists. Dubai is a global hub for physical gold trading and tourists play a large role in the trade. The WGC is seeking to boost buying momentum with a $4.5 million jewellery marketing campaign aimed at Saudis and Emiratis.