Saturday, February 14, 2009

Gold Jewelry Sales in the Middle East Slump

In Dubai, high gold jewelry price per gram means low salesDespite the continued move of investors into gold as concerns over economic grow, sales of gold jewelry are continuing to fall. Reports from United Arab Emirates indicate that gold jewelry sales at Dubai and Abu Dhabi's famous gold markets fell by over 60% in January. Sales have also slumped in Jeddah, Saudi Arabia, another large jewelry market. The Middle East is usually a hot spot for gold jewelry sales, because of cultural importance of gold jewelry in Arab weddings and other rituals. As the price of gold rises to historic levels, Arabs have increasingly been relying upon bridal costume jewelry gold, and the rental of gold jewlery to be worn during weddings. A similar phenomena has been reported in India, where wedding gold is also popular.

The drop in demand is undoubtedly related to the rising price of gold, which rested at around US$940 per troy ounce today. This could be an indication that Saudis and Emiratis see the high prices as an indication of a ceiling and that prices will soon drop once again. On the other hand, with Saudis reportedly buying up huge amounts of investment bullion in recent months, perhaps the drop in jewelry sales is an indication that those with investment purposes in mind are moving into gold bullion for its superior investment potential. Gold jewelry is sold at high premiums above the spot price of its gold content, to pay for design and craftsmanship, while bullion is sold at the value of its gold content (plus a very small premium). But with the drop in sales, gold jewelry vendors have been drastically reducing the premiums to attract buyers.

Deira gold souq, DubaiAnother reason that sales have dropped, particularly in UAE, could be that the economic troubles have reduced the numbers of tourists willing to spend money on vacations. Dubai and Abu Dhabi's gold bazaars are the most famous tourist attractions in UAE, so a drastic drop in tourism results in a huge loss of business. This would be the case even if gold prices remained low.

1 comment:

Improvedliving said...

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