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Feb 02 2009

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All that glitters

At Emirates Star Jewellery this week, Lilly the manager was watching the ever-fluctuating price of gold on her monitor.

"Selling gold has become a kind of gambling," she said. "Prices have been going up and up and then if they tumble, we are the ones who will be stuck with the loss."

With the oil and property markets tanking, international investors have rushed into the gold market as a safe haven and, ironically, that has been bad news for the jewellery dealers of the Deira gold souk.

As 7DAYS revealed last week, jewellers are facing chronic shortages of gold coins and bars as major investors snap up available supplies, store them in bank vaults and sit out the global recession.

For Lilly and other souk managers, the combination of rising supplier prices and a sluggish retail market have left margins razor thin.

"Nobody wants to sell gold to retailers," said Lilly as she prepared to buy another load. "If I buy at $850 an ounce and sell at $900, I have to pay my staff and all my expenses from that.

"The suppliers are pushing us to pay more but we cannot pass it on to customers because the market is bad," she said.

As prices soar and retailer margins are squeezed, some suppliers try to convince jewellers to buy more, based on the gold's origins.

"They tell you this gold came from Italy, this gold from Bahrain. But that is not what is important, because the quality is tightly regulated. It is the high price and the lack of customer demand that is the problem," Lilly said.

The financial manager of one of Dubai's largest jewellery suppliers, Joy Alukkas , said that there was a large amount of bullion on the market, but it was not reaching retailers selling gold coins and gold bars - long sought for their high quality and investment potential.

Some retailers are frustrated by the "drastic" fall in customer demand while gold suppliers push the price per ounce beyond $900 an ounce, he said.

Ironically, he notes a "high physical availability of bullion", which is being sold at a discount.

It is the international demand for the end product, coins and gold bars, that is pushing up prices.

This new gold rush is affecting Dubai's small retailers, who are being pushed out of the market.

One manager at a major Dubai jewellery chain noted that the big investors are not being frightened off by the high price of gold.

"It went to $1,030 an ounce in March and still they stayed in the market because there is nothing else out there. The gold suppliers are very hungry to feed that market and so it's the small retailers that are suffering. They cannot get the gold and they are the ones who supply the gold to the goldsmiths, so there is a ripple-effect among small players," he said.

One of the biggest suppliers of gold bars, Pamp Suisse, has been unable to supply many retailers with the amounts they want, several reported.

Swapna Nair, general manager of the Dubai Gold and Jewellery Group , which regulates the market, said that some of the "madness" in the market has eased.

"When prices were low, investors rushed in and people visiting Dubai couldn't find gold coins and bars.

As prices rise, that has eased off. More gold is available, but unfortunately, the demand is not there,"
she said.