Dubai jewellers expect the dramatic price dip to work in their favour to reignite consumer demand and lure shoppers in droves to their outlets.
The steepest five-year fall in global gold prices on Monday might be a bit too late for holiday shoppers to rejoice, but could turn out to be a boon for Dubai’s jewellery retailers hit by a dismal sales plunge during the traditionally peak sale season of June and July.
Dubai jewellers, faced with an average 25 per cent plunge in sales in the normally brisk pre-holiday trading period of June and July, expect the dramatic price dip to work in their favour to reignite consumer demand and lure shoppers in droves to their outlets.
“The price fall will certainly draw shoppers back to the souk once the fluctuations cease. It is good news for the languishing jewellery trade after over 45 days of lean trading days,” a leading jewellery retailer told Khaleej Times.
“This year, the customary buying spree witnessed at jewellery outlets before the start of school summer vacation was just not there. June and July witnessed quiet activity as some outlets posted up to 35-40 per cent sales drop. But on an average, the retail trade recorded a 25 per cent drop,” said Chandu Siroya, vice-chairman of the Dubai Gold and Jewellery Group.
He said for the jewellery wholesale sector, the sales dip was not so harsh. “It was just five to 10 per cent,” said Siroya.
Wholesale and retail jewellery trade accounts for a bulk of Dubai’s $75 billion gold market, which in 2013 constituted 40 per cent the total world trade.
With global gold price falling four per cent on Monday to as low as $1,088.05 an ounce in Asian trade – the lowest since March 2010 – the retail jewellery price in Dubai dropped seven per cent over the past month.
The retail price of 24k gold jewellery dropped by Dh11 per gramme to Dh134 on Monday from Dh145 on June 20, while 22k gold jewellery fell to Dh127.50 from Dh137.75 a month ago.
Tawhid Abdullah, chairman of the Dubai Gold and Jewellery Group, attributed the drastic price plunge to several factors, including the Greece crisis and surging dollar value. “The decline in gold price usually drives retail jewellery demand and it has been the trend over the years. However, the sharp decline will translate into incremental sales only if it sustains for a few days. At the moment, the gold price is fluctuating constantly. We are yet to see if the sudden decline has encouraged retail activity substantially; it is too early to draw any conclusion,” Abdullah said in a statement.
Precious metal analysts said the current price plunge was triggered by investors who turned to the US dollar, which rose on the likelihood of the Federal Reserve raising rates because of a stronger US economy.
Investors generally buy gold during times of uncertainty.
Monday was the first time gold has traded below the key threshold level of $1,100 since March 26, 2010. The decline comes amid growing expectations for an increase in US interest rates later this year and after China’s central bank indicated its gold reserves were half the expected level.
In its first update in more than six years, the People’s Bank of China on Friday reported its gold reserves at 53.32 million troy ounces, up 57 per cent from the end of 2009 but only about half of what market observers had estimated. China is one of the world’s biggest gold buyers.
Gold’s fall has been exacerbated by a slide in China’s stock market, as few people have the cash to buy the yellow metal. And few investors see gold, an asset that throws off no income and costs money to hold, resuming its decade long rally that ended in 2011.