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First with Financial Comment from Arabia

Dubai imports $29bn gold but down 15% on jewelry slump

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The shift in interest from gold as a raw material for jewelry manufacture to pure investment use mainly accounted for a 15 per cent fall in gold imports to Dubai last year.

Yet the City of Gold still traded a whopping 576 tonnes of the yellow metal, albeit down from 674 tonnes in 2008, with $29 billion worth of gold passing through the city.

Real demand unclear

This was actually better than the World Gold Council’s estimate of a 28 per cent fall in regional gold demand to 250 tonnes in the fourth quarter. But it is far from clear if these figures include all gold transactions.

There is talk in the market that one Gulf oil state is presently swapping 200,000 barrels per day of oil for bullion, and of flights into the region from Australia laden with gold.

The official figures have certainly been dented by lower jewelry sales. High gold prices traditionally put off jewelry buyers who unlike investors like to buy at low and not high prices. There have also been less tourists as a result of the global economic crisis, and they have been spending less.

But let us not get too carried away. According to the World Gold Council, the consumption of gold by jewelers in the fourth quarter in Saudi Arabia stood at just 17.1 tonnes and the UAE 16 tonnes.

Investment demand

Investment demand for the yellow metal is far harder to quantify. Purchases of gold by Arabian investors that now sit in foreign vaults will not show up in the Dubai figures.

It would therefore be wrong to conclude from these figures that the Arabian love affair with precious metals is over. Far from it, anecdotal evidence all points to far greater interest in bullion as a means of protecting against possible currency instability in a world of massive budget deficits.

Inflation has always been the traditional refuge of governments with large debts and inadequate revenues, and that means that cash will lose its purchasing power. Gold as a currency that cannot be printed, and silver as poor man’s gold, are still on the way up, and increasingly recognized as vital for any Gulf investment portfolio.

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Written by Peter Cooper

March 8, 2010 at 10:16 am

Posted in Gold & Silver

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