Dubai: Even a late December surge in buying was not enough to add sparkle to the UAE’s gold jewellery sales during 2017. In fact, overall jewellery volumes dropped for a fourth straight year, totalling 42.8 tonnes as against the 43.4 tonnes gold retailers managed to sell in 2016. This is the lowest retail volumes for jewellery in the UAE over the last 20 years.
Saudi Arabia remained the biggest market for gold jewellery in the Gulf, accounting for 45.7 tonnes (down from 49.4 tonnes), according to the latest figures from London-based World Gold Council (WGC). Among Middle East markets, only Iran came out with a strong demand, up 12 per cent to 45.4 tonnes.
In fact, much of the demand spike in the UAE happened during a six-day stretch from December 26, when DSF 2018 opened and shoppers used the opportunity to buy up gold ahead of the January 1 deadline for VAT to come into effect. As for the rest of 2017, there were phases when demand picked up but was not able to sustain the run beyond a few days. The firming up in bullion prices too had a role in shading gold’s glitter among shoppers. To put matters in context, the overall 2017 tally for UAE jewellery demand could have been much worse if not for the 16 per cent year-on-year gain during the final three months.
Overall global demand for jewellery weighed in at 2, 135.5 tonnes (up from 2016’s 2,053.6 tonnes), helped along by improved offtake in India (up 12 per cent to 562.7 tonnes) and China (at 646.9 tonnes and a gain of 3 per cent), based on WGC estimates. India’s jewellery offtake seems to be getting back into some shape after an exceptionally difficult run from November 2016, when demonetization vaporized demand for a couple of months, and then immediately after GST (goods and service tax) became effective from July 1, 2017.
On the whole, global jewellery demand ended 2017 in positive territory. Interestingly, this was the first time since 2013 that sales recorded a year-on-year gain.
But overall demand for the yellow metal took a bit of a dent in 2017, coming in at 4,071.7 tonnes and lower by 7 per cent from a year before. The main cause for the dip was the lack of buying support from ETFs (exchange traded funds) in the US, with investors there intent on topping up their exposures to already over-valued stocks rather than spread their risks. “They were willing to overlook valuations that were at historic high and stock prices that were pretty frothy,” said John Mulligan, Head of Member and Market Relations at the WGC, to ‘Gulf News’. “The P/E levels seem to be at a point only seen preceding crash.”
But even then, investors were unwilling to look beyond equity. As against the sizable ETF support for gold all through 2016, last year saw those in the US cutting down their exposures. Overall global ETF pick up of the metal was 202.8 tonnes, a sizable 63 per cent cut from the 546.8 tonnes in 2016. Only the backing of Europe-based ETFs - who collectively picked up 148.9 tonnes for a 73 per cent share - helped... and that too only to an extent.
There was subdued buying from central banks, with the notable exception of Turkey’s, which had been picking up 11 tonnes a month. The official gold reserves worldwide came to 371 tonnes in 2017, 5 per cent down on 2016.
And what of the immediate future for gold? US stocks - and even elsewhere - have been under strain for the last week. If these sell-offs pick up further momentum, gold could see an upswing. “We expect the (gold) prices to trade under pressure but recover by the end of the week amidst uncertainty in the equity markets,” says an update from Century Financial Brokers. “The solid uptick in average (US) hourly earnings and consistent growth in the global commodities index hints towards inflation rising, which could help counter the slump gold prices as well.”
None of which will be of any comfort for UAE’s gold consumers and its retailers. Market sources are worried that prices in the $1,300 an ounce plus range will make for subdued demand. And with the 5 per cent VAT add on, shoppers will take time to adjust this to when and how much they buy into gold.