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Weak gold price has Dubai consumers clamoring for more

Section: Daily Dispatches

By Manoj Nair
Gulf News, Dubai
Wednesday, September 24, 2014

With local gold prices dipping below the 140 dirhams a gram (for 22-karat) level for the first time this year, it was enough to unleash a manic round of buying at jewellery stores in the United Arab Emirates and the Gulf over the weekend. If the current levels -- of around Dh140 -- can sustain itself, it could lead to a surge in buying ahead of the key festivals of Eid and Diwali next month, industry sources say.

Industry feedback suggests that on Friday itself nearly 1.5 tonnes of gold could have been bought at retail level transactions across the Gulf, with the UAE accounting for nearly half of that. On Monday, with the price at Dh139.25 a gram, the level of consumer interest was sustained.

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"The month with Diwali" -- the Indian festival when buying jewellery is rated as auspicious -- "represents a peak buying period for the trade in the Gulf, and this year it's doubly so with Eid also falling in the same month," said Shamlal Ahmad, director of International Operations at Malabar Gold & Diamonds. "Shoppers are clearly bringing forward their purchases to make use of the soft prices."

The weakness has much to do with the relative strength of the dollar during the runup to the Scottish referendum. At one point investors were getting spooked that the vote would be a close-run thing and were parking their funds in the safe haven of the dollar. The Ukraine conflict also had a hand in the greenback's strength, and another great boost was provided by the U.S. Federal Reserve confirming that the low interest rate regime was coming to an end.

According to Chandu Siroya of the Dubai Gold & Jewellery Group, "I won't say the buying patterns over the last four days were intense, but there is a definite spur to demand. If the Dh140 level holds, and I don't see why it shouldn't, it would be enough to keep shoppers interested."

Some within the industry believe that a combination of a lower price and the ongoing physical scarcity of the metal in India could translate into some sort of increased demand in the local market. These could then be sold in India at a premium. (Based on the official rates, gold prices in India are higher by Dh16-Dh17 per gram compared with Dubai's.)

According to Cyriac Varghese of Sky Jewellery, "Having dipped below Dh140 this week, the obvious question is whether there is enough pressure building up to pull it lower."

It was in the second quarter of last year that global gold prices started showing weakness after an extended run of gains. At that time the price dipped below $1,200 an ounce, and a quite substantial gap from the near $1,900 an ounce commanded in 2011.

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