Gold crush

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EXPENSIVE: Gulf shoppers are facing increased prices as the cost of gold rises.

The Gulf's gold souqs should be full of life at the height of the Indian wedding season. However, rising prices mean dowry despair for many.

It should be rush hour in the Gold Souq, but there is not a bride-to-be in sight and the traders are not as happy as they were this time last year.

Instead of bustling crowds and noisy haggling, the mood is quiet and the shopkeepers have more than enough time to polish their wares.

Amina Mohammad Sultan is one of the few browsers looking for a dowry for her daughter in the otherwise barren halls of Dubai's most famous marketplace.

"People can't buy gold anymore for marriages," says Amina, surveying the prices on display through a shop window. "We might buy a simple piece of jewellery. 20 years ago I bought a piece for US$3500, now it's double the price."

Gold has advanced 52% in the last year, breaking the US$1000-an-ounce barrier for the first time on March 13. While investors who have bought the precious metal are celebrating their gains, traders in the gold-buying capital of the world are suffering as shoppers shun expensive brooches, bracelets and rings in favour of cheaper alternatives.

The World Gold Council concedes that while the soaring price is encouraging for trade in the commodity, it has also caused problems for the retail jewellery business.

"Whilst the rising and volatile price has been a highly positive trend for those already holding gold, it has posed a short-term problem in regard to consumer purchases of jewellery, gold bars and coins, acting as a disincentive to some buyers," says Moaz Barakat, the council's managing director for the Middle East.

The Indian wedding season begins in January and is traditionally the busiest time for traders operating from Dubai's Gold Souq. Indians are the biggest consumers of gold in the world. India alone buys at least one-fifth of the global gold supply each year.

An estimated 15,000 to 20,000 tonnes of bars, ingots and jewellery are safely hidden in India's banks and household safes. In Dubai, Indians make up 60% of all gold buyers, according to Hitesc Bapodra, who works in the wholesale diamond and jewellery trade.

Despite the start of the Indian wedding season, which typically sees a surge in the buying of dowry gold, the souq shopkeepers report that bridal purchases have slowed to a trickle.

"Nowadays, most of our dowries are just for show. A year and a half ago I could have sold a dowry for 12,000 dirhams but now it is 30,000 dirhams," says Kishor Soni, shop manager at Kanz Jewels.

"People used to buy up to half a kilo of gold for a dowry, but now they buy quarter of a kilo or less," he adds.

The rise in gold prices has affected Soni's business dramatically. Prices have risen by about 50% over the year while at the same time trade has dropped by roughly the same margin.

Sunil Nagdev, who recently got married in Dubai, made a wise decision to make all his wedding buys earlier, anticipating that the gold price would continue to advance.

"Everyone knows that gold prices are going up so if you are smart enough, you make a booking earlier and pay a small deposit and then buy the gold whenever you decide to buy, either you do that or wait and watch, letting the gold fluctuate," he says.

The rise in the price of gold has not only affected the Indian community in Dubai. Bapodra says that a large number of UAE nationals come to the Dubai souq for dowry buys from other emirates.

"They don't have the money to buy now," he says.

Indians still make up the majority of gold buyers in Dubai, according to Bapodra, but Barakat believes this is changing.

"About 50% of the market is tourist now. The Indian influence on the market is diminishing with time," says Barakat.

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