For jewellers, gold loses its shine

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Gulf jewellers are reporting lacklustre sales, as gold prices are pushed up by recession-spooked investors seeking a solid asset class.

Shane young, a joiner and cabinet maker from Melbourne, has just bought his girlfriend Rachel Clark a white gold ring in Dubai's Gold Souq. It is their first visit to Dubai.

"From what I've seen prices here are very negotiable," he says with a smile, having just brought down the price to AED700 ($190) from AED1,300 ($354). "But they're not exceptionally cheap."

Some things may never change in the Gulf's traditional souqs - haggling being one of them - but the price of gold certainly does. Gold reached $1,000 per ounce last month for the first time in almost a year as investors turned to a traditional safe haven in volatile times.

For the region's jewellers, that has added to the pain of slowing consumer spending, especially among tourists.

Inside Dhanak Jewellers, one of the souq's 300 or so outlets, store manager Deven Jatakia says his prices have risen by up to 25 percent since the beginning of the year due to the soaring cost of gold. Coupled with the international recession battering tourists, this has led to a 50 percent drop in sales in the year to date, compared with the corresponding period last year.

"December was still good, but sales in January were down a lot," he says. "The number of tourists is unchanged, but their buying power is down."

Regional jewellery giant Damas takes a slightly more sanguine view of the market. "I think sales are down by 10 to 12 percent this year," says chief executive Tawhid Abdullah, adding that sales seem to be stabilising at the current level.

"Usually, when the price of gold goes up, it takes a while before people start buying aggressively," he continues. "But the confidence is still there. I mean there is more confidence to buy gold at $900 than there is at $800."

Abdullah does not think his company will have to close any stores this year as a result of a weaker market. "The market is not that bad. I am talking on behalf of myself, I don't know about others, but we don't see people closing down."

Damas recently opened nine new stores in The Dubai Mall, one of the world's largest shopping centres, but has shelved plans for around six store openings in the UAE, in response to reduced demand.

In Abu Dhabi, the volume of gold jewellery sales fell by 70 percent in January, according to the Abu Dhabi Gold and Jewellery Group, a trade body.

"Sales are poor, down to 70 percent in volume in January, it is the lowest sales since early 2008," chairman Tushar Patni told newswire Reuters. "The prices are high, there are no festivals or occasions and the liquidity crisis... these are the main reasons for such bad sales."

According to the World Gold Council, global demand for gold assets rose by 29 percent last year to $102bn. While equity markets around the world lost an estimated $14 trillion in value, investment demand for gold, which includes exchange traded funds (ETFs) and bars and coins, rose 64 percent. Over the year as a whole, the gold price averaged $872, up 25 percent from $695 in 2007.

Demand for gold jewellery in the Middle East fell seven percent in the fourth quarter of last year, but was largely offset by a 139 percent surge in retail investment, which excludes ETFs and similar products.

The rise in investment demand for gold as an asset class was widespread across the region, with growth of 300 percent in Saudi Arabia, 67 percent in Egypt, 38 percent in the UAE and two percent in other Gulf countries. The surge in Saudi Arabian investment offset an 11 percent fall in jewellery sales in the quarter in the Kingdom.

The western region managed a flat performance as the Hajj pilgrimage season underpinned the market, while demand in the eastern and central regions were particularly weak.

"Gold has again proven its core investment qualities as a store of value, safe haven and portfolio diversifier and this has struck a chord with nervous investors," says Aram Shishmanian, chief executive of the World Gold Council.

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