Following a weak US dollar, the value of gold spiked towards the end of 2018, a trend that is set to continue. This saw a rise of Dh1.25 per gram in UAE, within a period of 24 hours. The karat is now trending at Dh48.25 per gram. As the price of gold suffers again in UAE, what does it mean for investors?
With the decline observed in 2018, the prices of gold as predicted by the marketoracle gold price forecast could rise to 1,300 dollars per ounce towards the end of 2019. It means that UAE consumers could spend Dh300 more on a 30-gram piece.
What the Future Holds
The past few months since the start of the decline have been unproductive. Residents in the UAE have in turn stocked up to 24K jewelry at about Dh160 per gram dropping by approximately 50 fils. Most of the residents here stocking up the gold in the form of coins, bars, and jewelry are Asian expatriates.
Value-added tax was introduced in 2018, causing consumers to spend less on gold. The VAT was imposed during the Dubai shopping festival which had attracted a robust number of international jewelry buyers and sellers.
Most of the Indian jewelry is routed through the Emirates to other markets across the globe, meaning that the taxing is a pressing concern. At the start of 2019, consumers in the UAE recorded a stellar decline in sales with shops reporting an average daily sale.
Jewelry Demand Sees a Drop
Despite the decline in gold prices, some markets are registering a slow pace in the shopping of the metal. In the UAE, the jewelry demand dropped by 24 percent in the second quarter of 2018. Soon after VAT was introduced, most buyers turned away from the metal.
What was seen was that the shoppers shifted to VAT-free forms such as the gold bars. For some, however, the investment demand for gold is slowly returning as they adjust to the high prices. In the first quarter of 2019, at least Dh2.47 billion worth of the yellow metal was sold. This went up by about 58 percent from the previous 426m dollars the same time last year.
What Next for the Retailers?
The UAE gold retail sector braved an extremely tough year, as shoppers avoided the large payouts. For most of the year, the prices of gold had also been trending higher. Some buyers in the Emirates are now getting savvier by melting goldsmiths and converting them into chains at low rates. These gold chains can then be taken to India for a resale without incurring any custom duty like would be the case with coins and bars. For many retailers, 2018 was a difficult year. With the rising gold prices, retailers in the Emirates are having tough times staying afloat. Despite the drop in Dubai gold prices, investors keep waiting for the Federal Reserve in the US to solve the monetary policy issue.