Dubai's gold sector has posted record-breaking first quarter results, though high prices and falling demand may mean the immediate future could be less than gleaming for the self-styled "City of Gold".
The total value of gold traded through Dubai between January and March hit $7bn, an increase of 73% over the same three-month period in 2007 and a 35% rise over the fourth quarter last year, the Dubai Multi Commodities Centre (DMCC) reported on May 24.
Though representing strong growth in trade volume, Dubai's gold imports for the first three months of the year were well down on the same quarter in 2007, dropping off by nearly 8% to 122 tonnes. However, while imports were down, exports climbed sharply to 115 tonnes, an increase of 74% year-on-year.
This year's surge in trade value can be attributed to both high international prices and Dubai's growing prominence in the global gold marketplace.
It is significant that export volume was almost equal to that recorded for imports, bucking the trend of past quarters, where local demand and stockpiling by brokers saw imports outstrip exports by a wide margin. Retailers and brokers may be taking advantage of peaking international prices to unload their stocks at the top end of the market, aided by Dubai's tax-free regime on gold sales, which gives them a competitive edge.
Ian MacDonald, the executive director for gold and precious metals at the DMCC, said record prices were contributing to lower import figures.
"With global gold prices crossing the $1000 mark and remaining significantly high throughout last year, there has been an impact on the volume of imports," he said on May 24. The average price of gold in the first quarter of 2008 was $925.25 per ounce.
There had been warnings that the continued volatility in international gold prices could eat into Dubai's strong position and result in a fall in sales. In particular, there could be a contraction in the vital Indian market, Dubai's biggest single buyer and the world's largest consumer of gold.
Some of these concerns have been given substance by a World Gold Council report issued on May 21, which showed that purchases of gold across the United Arab Emirates had slumped by 19.3% to 24.2 tonnes in the first quarter of 2008. However, while sales were down, the actual value of gold bought was $862m, an increase of 15.1%.
Despite these concerns, gold processing companies seem to be showing a vote of confidence for Dubai's precious metals sector. On May 25, local media reported that Indian industrial group Vedanta had finalised plans to construct a refinery in Dubai that would be able to process 20 tonnes of gold and 80 tonnes of silver annually.
Another local firm, ARY Aurum Plus, has announced plans for its processing capacity to reach 100 tonnes yearly by 2011, while Dubai's leading refiner, Emirates Gold DMCC, is able to process around 1.5 tonnes of gold or silver daily.
In addition, MacDonald said the increasing percentage of gold coming into Dubai in the form of scrap or old jewellery highlighted the development of a new subsector in the industry.
"With scrap becoming an important component of imports, the emirate's growing significance as a gold refining centre has been further emphasised," he said.