Gold's steep price not too big a climb

Volume of metal sold declines slightly, but higher price pushes up overall value of trade.

Shoppers in the Emirates snapped up US$741 million (Dh2.72 billion) worth of gold in the third quarter, 20 per cent more than in the same period last year, even though the price continued its climb to record highs, the World Gold Council said.

While the amount of gold that physically changed hands in the three-month period was down by 6 per cent to 18.8 tonnes, UAE consumers spent $121m more than in the third quarter last year, the latest data from the council show. The metal was bought as jewellery and in bars, coins and exchange-traded funds.

Yogaani Bhatia, the UAE country manager for the World Gold Council, said the steep cost deterred some potential buyers during Ramadan. But a strong wedding season and many Asian expatriates buying gold before heading to their home countries helped to keep sales buoyant, she said.

An additional boost to sales was consumers' expectation that the price would rise further, she said.

"You have a lot more consumers buying slightly fewer grams, but a lot more people are encouraged to buy gold," Ms Bhatia said. "The quantity is slightly reduced, but they do not stay away."

Gold jewellery is traditionally a big seller in the UAE, for adornment and investment. But the normal pattern of buying has been crimped by the rising cost of the metal over the past two years as investors flock to gold as a haven during uncertain economic times. The gold spot price yesterday was trading at nearly $1,340 per troy ounce, down from the record high of $1,419.40 on November 9. Yesterday's price was up about 27 per cent from this year's low of $1,054.95 in February.

Global gold demand in the third quarter of this year reached 921.8 tonnes, up 12 per cent from the same period last year. But the value of the gold bought around the world rose by 43 per cent from last year's third quarter, reaching $36.4bn.

The demand for jewellery, which makes up the bulk of the gold purchases in the Middle East, was up 8 per cent globally to 529.8 tonnes. This growth was mainly due to big sales in India, the world's largest market for gold, and Greater China. Third-quarter demand for goldrose 63 per cent and 48 per cent, respectively, in the two countries.

In the Middle East, while the increasing cost of gold is deterring some of the region's consumers, they are becoming accustomed to the high prices, Ms Bhatia said.

And big occasions such as weddings pushed UAE residents to buy, she said. "What we witnessed was that there were a lot of weddings that got postponed to this year," she said. "The wedding season was quite healthy this year alone."

But because most retailers hedge their stock, they have not benefited from the rising prices, said Chetan Karani, the deputy managing director of the Dubai Gold and Jewellery Group. Retailers make their profits from charges for making jewellery and from the quantity of gold sold, and any drop in the weight of gold sold hits the bottom line, he said.

But given the high prices and consumers' budget-consciousness, sales in the third quarter were "reasonable", he said.

"I think people are getting used to the fact that they are going to pay $1,000 plus [per troy ounce] for gold," he said. "It's not going to get below $1,000 very soon."

In turn, more people are buying gold bars and coins, Ms Bhatia said. In the third quarter, retail investors in the UAE bought 1.6 tonnes of gold bars and coins, up 23 per cent from the same period last year. That amount represented a 57 per cent increase in value to $63m compared with the third quarter of last year.

The council is expecting a better result in the fourth quarter of this year, especially because of the Indian festival of lights earlier this month, which some consider an auspicious time to buy gold.

Initial figures from the top six gold and jewellery retailers in the GCC showed that consumers bought 32 per cent more gold this year than during last year's Diwali, Ms Bhatia said.