"There has been an increase of about 60 percent in the price for renting premises for jewelry stores over the last five years. In addition to this, many shops in the central area around the Grand Mosque have been demolished due to the ongoing expansion works and mega development projects," said Khaled Al-Hashidi, first deputy president of the Gold and Ornaments Committee at the Makkah Chamber of Commerce and Industry.

Al-Hashidi said several businessmen have left the sector after their properties were expropriated for the Grand Mosque expansion. "Some of them were not in a position to put huge amounts of money to rent new shops while others were reluctant to do so due to the decline in business following the surge in gold prices across the world," he said.

Despite these factors, there has been a 1.5 percent increase in gold sales in Makkah in the first half of the current year compared to the same period last year. The gold market in Jeddah, however, has seen a decline, which is mainly thought to be due to the high price of gold.

Jameel Farsi, a prominent investor in the Kingdom's gold market, said the upward trend in gold prices has considerably affected sales. He attributed this mainly to people no longer feeling safe with other forms of investments and that they view gold as the safest mode of investment.

He said this is more evident after the global financial crisis and devaluation of major global currencies such as the dollar and euro. He said many countries have also begun adding to their gold reserves.

According to Farsi, the high price in the global market is the main cause of low gold sales in the Kingdom. "The Saudi gold market is also witnessing stiff competition among investors. This has forced them to sell jewelry on a small margin that goes toward manufacturing costs. The Kingdom is perhaps among the countries with the lowest rate of manufacturing cost in the world or at least in the region," he said.

Meanwhile, Al-Hashidi said that there has been no increase in the sale of gold as expected in the current Umrah season and summer vacation. The main factor for this is the high price, and the average rate over the last three months was about $1,200 per ounce.

"The expectation that there would be a decline in prices is also another factor. There was a 14 percent drop in the sale of gold last year. This was mainly attributed to a fall in the number of Umrah pilgrims due to the swine flu scare," said Al-Hashidi, adding that customers last year were mainly Saudis and visitors from neighboring Gulf countries.

© Arab News 2010

 

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