Gold sees a shiny year in the GCC

Demand for gold in the Middle East region in the third quarter of 2009 was up 6 per cent compared to the weak levels recorded on Q2 2009, new data shows.

The latest Q3 report released on Sunday by the World Gold Council (WGC), however, shows a 34 per cent drop on year-earlier levels due to an exceptionally strong Q3 2008. WGC’s chief executive Aram Shishmanian, said while there are signs of improving levels of demand for gold in the Middle East region, it is too early to say when we might see a return to more traditional demand levels.

“The high gold price and recent local price volatility has been a major factor in impacting on demand, but this has also been coupled with ongoing regional economic uncertainty and a decline in tourist numbers,” he’s quoted in the report as saying.

Boosted by oil prices

Compared to other parts of the world, in the GCC region, the yellow metal continues to shine bright. On Monday, gold powered to a record above $1,160 an ounce due to strong oil prices.

The precious metal is considered a safe haven for investment, when stock markets seem to act up. Ironically, this is one commodity that has inversely benefited from the global financial crisis, since gold demand is generally well supported by continued economic uncertainty and inflation concerns that lead to investors searching for relatively safer asset diversification.

As the global financial slump that started in the US last year led to distressed stock markets and banks crises, investors were left feeling exposed and wary about their hard earned savings and many turned to gold as a sound and safe investment.

Generally, how this works is that a weaker US greenback makes the dollar-priced gold cheaper for users of other currencies, thereby raising the metal’s safe-haven appeal against possible inflation.

“Significant gold performance during difficult economic periods is largely driven by the high-profile players investing in the metal,” says a spokesperson of Damas.

“But on the other hand, let’s not forget an important market that also encourages huge moves into gold: the wider jewellery consumers,” he adds.

“Increasing demand from investors and tourists alike here in the UAE has lifted the market,” a sales manager at one of Joy Alukkas outlets in Dubai, said.

Regionally, jewellery demand for Q3 2009 was up 2 per cent compared to Q2 2009, whilst retail investment demand was up 71 per cent.

“This quarter’s demand trends demonstrate the diverse and robust nature of the gold market which underpins the gold price. Early signs of economic recovery and improving consumer confidence have seen jewellery and industrial demand rise relative to last quarter, and the profit taking witnessed earlier in the year has markedly decreased,” says WGC’s Shishmanian.

Saudi Arabia on top

According to market reports among Middle Eastern countries, Saudi Arabia tops the list when it comes to retail gold consumption in terms of tonnage while the UAE comes second. Women in particular drive the numbers in the purchase of gold jewellery.

An earlier survey done by WGC titled: What Women Want: Global Discretionary Spending Report showed that gold jewellery in Saudi Arabia has retained and even strengthened its position, both in comparison to other competing luxury goods and in terms of its own specific appeal, among women.

“The sentimental value of gold sets it apart from the competing purchase choices, making it more desirable and longlasting – with most women regarding it as an ‘everlasting gift’,” the report said.

Helped by purchases by a number of central banks, gold has surged since the start of November, hitting nine record highs and gaining 11 per cent in the past three weeks.

Just last week, the international gold market received a major boost after India acquired 200 tonnes of the precious metal from the International Monetary Fund.

“Sentiment has turned extremely bullish and bullion, which has gained around 32 per cent so far in 2009, has struck a succession of lifetime highs pushed up by what has come to be known as ‘safe haven’ phenomena,” said Damas’ spokesperson.

Local gold retail outlets Damas, Joy Alukkas and other traders have also planned elaborate promotions to push up sales during the forthcoming holidays of Eid Al Adha, UAE National Day and also Christmas season later next month.

Speaking to Alrroya.com, a sales manager at the New Gold Souq in Al Mina, Dubai, showed optimism, saying the retail gold sector looks bright.