Dubai: How much should gold prices drop before shoppers in the UAE start buying again?
Going by the trends in the first three months, anything around Dh190-Dh195 a gram should be enough to get shoppers back. And for a brief period in March, UAE shoppers did just that as gold prices showed some weakness for the first time in more than 12 months.
Much the same was happening in the rest of the world, as shoppers in India, China, other Gulf markets and the US stocked up on jewellery – in all, 477 tonnes of jewellery was bought during these three months, a sharp 52 per cent increase on the tally from first quarter 2020, when the world was moving into a lockdown. March buying was spurred by the dip below $1,700 an ounce, and it was felt that gold prices were set for a period of cooling off. And for demand to heat up…
“The first quarter was very much a story of recovery – or rebalancing – for retail demand,” said John Mulligan, Director of Market Relations at London-headquartered World Gold Council. “Demand in China was pretty strong across the board, India partially recovered between January-March.
“The price drop – and/or price stabilization – tempted people back into the market because they were comfortable with the level.”
Shoppers in the world’s two biggest gold consuming markets bought up 292 tonnes of jewellery in the first quarter, with Chinese offtake of 191 tonnes being the highest since 2015.
“With that kind of demand, we saw record import figures of 164 tonnes – which is the highest in a decade,” said Mulligan.
Apart from jewellery, bars and coins too were in high demand, especially among budget conscious gold buyers. Worldwide, 340 tonnes of gold in the form of bars and coins were bought – and the best tally since the fourth quarter of 2016.
Too good to last
And then it all came to a halt, for a combination of reasons. Gold prices started to push back beyond $1,700 levels and is now at $1,788. The Dubai Gold Rate for 22K is Dh201.75 a gram. According to jewellery trade sources, shoppers in the UAE have been showing little appetite for gold in recent weeks.
“Shoppers are not comfortable with having to spend more than Dh200 a gram when it was sub-Dh195 just a few weeks ago,” said the owner of a leading retail chain. “It will take some adjusting in mindsets.”
Retailers are not pinning much hopes of an improvement by May 14, which is when Indians mark the ‘Akshaya Trithiya’ festival by buying new gold and jewellery. But realities outside of gold prices will have a say in this.
Value of jewellery spending in the first three months of 2021 – and the highest first quarter since Q1-2013
A crisis in India
With the ferocious spike in COVID-19 infections and all the associated problems that came with it, Indians, whether back in the home country or expats, have far bigger concerns to deal with. “There have been some major setbacks, and it’s almost presumptuous to talk of market sentiments for gold right now,” said Mulligan. “We will see a recovery only when the shadow of COVID-19 recedes. But it’s so difficult at the moment.”
Time for 18K
According to local retailers, high prices will not convince traditional 22K shoppers to shift to the – less pricey – 18K jewellery options. According to Sanjay Jethwani, Partner at Meena Jewellers, the buyers for each category is quite different.
“We are not seeing a shift of 22K shoppers to 18K,” he said. “A new generation of customers, particularly younger ones, prefer 18-karat gold because it can be easily made into accessories. With 18K, we get to address newer audiences who want to experiment with designs as well as buy more frequently.
“Due to the price difference between 18K and 22K, they are able to do that. 22K buyers are more traditional and also look at gold from an investment point of view. We are noticing that value shoppers get more active with prices increasing.”
Funds bail out
In the first quarter, overall demand for gold across its various forms totaled 816 tonnes, which is a relatively weak outcome. But that was created by funds that had been stocking up gold deciding to sell them off at the higher prices prevailing then.
In all, these gold-focussed funds shed 177 tonnes during the period, for a combined value of $9.5 billion.
“Having seen investors take shelter in gold from the initial impacts of COVID-19, Q1-2021 saw a sell-off in the gold price as confidence in economic recovery grew and US interest rates rose sharply,” said Louise Street, Senior Markets Analyst at the World Gold Council. “Despite this, gold retains its relevance in well-balanced portfolios, especially with a risk of inflation looming.
“Looking ahead to the rest of the year, we see reasons to be optimistic about the gold market as its main drivers remain well supported.”
But for shoppers, whether in the UAE or elsewhere, a return to gold buying will have to wait until there is come correction from the $1,780 levels. Until them, it’s better to wait.