The region's first gold market got underway this week in Dubai, with the enthusiasm generated adding strong support to the emirate's title claim for best financial centre in the Middle East.
The opening of the Dubai Gold and Commodities Exchange (DGCX) followed too on the heals of the opening of the Dubai International Financial Exchange (DIFX), back in September. The DIFX was the Middle East's first international bourse, and itself followed the establishment of the Dubai International Financial Centre (DIFC), opened last year as an independently regulated offshore financial centre.
Kicking off DGCX trading on November 21, Sheikh Mohammed bin Rashid, crown prince of Dubai, executed the first sell order on the electronic exchange, which was bought by Sultan bin Sulayem, chairman of the Dubai Metals and Commodities Centre.
"Dubai is a big centre for gold trading," Framrose Pochara, CEO of the DGCX, told OBG on the day. "We needed a proper mechanism to facilitate this trade."
Like the DIFX, the DGCX aims to be a truly international exchange, bridging the time gap between commodity markets in London and Tokyo. In a few months the gold exchange will for the first time also allow the opportunity to trade seven days a week, giving local dealers the chance to hedge over the local Thursday-Friday weekends, when other markets around the world are open.
Opening hours will be 10.00 am-11.30 pm Monday through Friday, and by the first quarter of next year the market will be open 10.00 am-1.00 pm on Saturday and 5.00 pm-10.00 pm on Sunday.
Unlike some of the projects that Dubai contrived in the name of diversification, a gold market is an entity that the emirate really requires. While tourism or real estate need aggressive marketing to bring in crowds, gold trading is an activity that has been around in Dubai for decades. The self-styled "City of Gold", Dubai is the largest gateway for metals trading between Africa, the world's largest gold producer, and India, the world's largest gold consumer.
Dubai's history in this precious metal started early last century, when the Indian government imposed restrictions on gold imports - making Dubai a proxy market for Indian buyers. In the last 25 years, the emirate has begun to take advantage of the Indian trade, using its reputation as a gold centre to sow the seeds of its now famous retail industry.
In the early days, the Dubai Duty Free, the airport shopping centre that redefined duty free in the Middle East, was the main buyer of gold - along with the traditional gold suq, which attracted consumers to the narrow alleyways of Dubai's oldest quarters.
As the emirate's reputation as a gold centre grew, it began importing gold from all the major production centres - Italy, India, Hong Kong and Bahrain - and with rock bottom prices, in-the-know buyers flocked to Dubai from around the world.
But until this past week, these gold traders have not had much forward security in selling their goods. The DGCX, however, gives them the ability to regionally hedge their risks better than ever before.
Previously, Dubai's gold traders were dependent on COMEX (New York) or TOCOM (Japan), both cumbersome because of time zone constraints and differences in working weeks.
Now, gold traders in proximity to Dubai are expecting volumes to increase rapidly in the city, which already trades 1.7 tonnes of gold on the spot market every day.
"People have realised there is a need for this kind of market," said Pochara.
Since its inception a few days ago, this has proved to be true. On the first day of trading on November 22, Gulf News reported that 45 active brokers traded 63 gold futures contracts worth $1m by mid-afternoon.
Adding to the good news was gold's continued strong showing in the commodities markets, posting an 18-year peak of $500 per ounce on Tuesday. With gold expected to stay high, the market is sure to attract even more regional attention.
The DGCX will be part of a larger Dubai Metals and Commodities Centre (DMCC) designed to house more integrated services than simply gold futures. Two gold refineries on the site are currently nearing completion and should begin operations by next year.
While the opening of the gold market was paramount to the DMCC, additional commodities soon plan to hear the opening bell. Next for the centre is the opening of trading in steel contracts, scheduled to begin in the first quarter of 2006, a trade hoping to capitalise on the huge amount of construction happening in the UAE and the whole Gulf Cooperation Council (GCC) region. Silver, diamonds, cotton, oil and freight rates are also in the pipeline.
These other markets might prove to be a bit tricky however, especially if the commodity does not have gold's historical ties to Dubai.
Dealing in diamonds is always a thorny venture in the Middle East, because of humanitarian concerns over the presence of African "conflict diamonds", and Israeli contacts in the business. Oil trading, though extremely relevant to the Gulf, might run into competition from NYMEX, which is planning to open an oil commodities exchange in the future. Plus, commodities markets are completely new to the region, and the Middle East has no history in running these sorts of exchanges.
But the hope is that even products that are relatively new to Dubai will be able to flourish because of the emirate's traditional strength in trade, pushing through any small bumps along the way. Still, the successes of the DMCC - and particularly the DGCX - will be closely monitored in the coming year to see what kind of activity the market will show.
One thing, however, is clear: there are high hopes that the DMCC's planned activities will not just boost the emirate's financial might, but also facilitate its economic growth.
"The DGCX will improve the efficiency in the markets and help the pricing process," said David Rutledge, CEO of the DMCC. "It will make the economy work better and accentuate Dubai as a regional financial centre."