Gold-buying tourists keep precious metal shining in Dubai

The value of consumer gold trades in the country increased from US$3.327 billion to $3.555bn, a gain of 7 per cent.

Indian tourists Vikram Mehta, left, and his wife Priti buy jewellery in one of the shops at Gold Souk in Dubai. Pawan Singh / The National
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Gold tourists from India helped to drive purchases of the precious metal in the UAE up by 22 per cent last year.

Consumers bought 77 tonnes of jewellery as well as gold bars and coins, according to a report from the World Gold Council.

But while local gold tourism is thriving, globally, monetary polices in the United States are said to be encouraging investors to shy away from the precious metal.

The value of consumer gold trades in the country increased from US$3.327 billion to $3.555bn, a gain of 7 per cent.

Low prices drove increased consumer spending in the region, said Tarek ElMdaka, the co-chief executive of Kaloti, the Dubai-based jeweller. As the price of gold fell to $1,200 per troy ounce earlier in the year, Mr ElMdaka saw consumers express “the belief that these were good prices at which to accumulate gold again”.

High premiums in India have incentivised “gold tourism”, Mr ElMdaka said, whereby Indian families visit Dubai to capitalise on price differences.

“People are visiting Dubai, paying for their travel expenses and hotel accommodation. They travel, shop, meet friends and family,” he said. Then they take gold back to India.

New import restrictions on gold aimed at plugging India’s swelling current account deficit have pushed up prices in the country’s markets. An ounce of gold in India cost $150 more than an ounce bought on the London spot market at the end of 2013.

This has swollen the black market for gold in the subcontinent, which the report estimates at around 200 tonnes annually.

“There are always people who play the risk game on the commercial side, and who use illegal channels to bring gold into India,” said Mr ElMdaka. “It can be done through many routes in Pakistan and Bangladesh.”

Chinese consumers overtook Indians in volume of purchases for the first time last year. And the gap is set to widen, as Chinese gold consumers plan to spend even more on the precious metal, according to the report. China, whose citizens bought 1,065 tonnes of gold last year, now accounts for more than a quarter of global demand.

Overall demand for gold fell by 15 per cent over the year, as investors moved away from the asset. Investors cut direct purchases of gold products by 51 per cent, while purchases of gold-backed exchange-traded funds also fell.

Tapering in the US has caused asset managers to move away from assets bought with cheap credit and back into developed market equities.

An average of forecasts from five major investment banks predicts prices will fall to around $1,200 an ounce in 2014, according to The Wall Street Journal.

Gold was priced at $1,313.73 an ounce in afternoon trading on international markets yesterday.