Dubai glitters in gold

A number of factors have been driving the demand for gold

Dubai takes the moniker of the 'City of Gold' very seriously and its latest attraction, the Dubai Frame, will be clad in gold, reportedly worth $25million. Once completed, the structure will be a striking testament to the City of Gold. 
Dubai's Gold Souk in Deira is one of the oldest gold markets in the city that is home to over 300 jewellery retailers. It is said that the market holds approximately 10 tonnes of gold at any given point. Also, Meena Bazaar, the hub of Dubai's retail gold scene has seen an increase in the number of visitors this year, and this been viewed as a positive sign for overall retail space.
Furthermore, in 2016, the Dubai Gold and Commodities Exchange (DGCX) reached its highest annual volume traded with an aggregate of 19.7 million contracts, valued at $439.5 billion. The exchange has reported that trading volumes for the month ending March 2017 has witnessed a strong year-on-year climb across its futures and currency business.
According to Vinay Gokaldas, Managing Partner at Dubai-based ICGP Management Consultancy, and precious metals trader at Babuntu Capital, one of the biggest inquiries coming from the region is about gold as an investment.
He highlighted, "Since the S&P500 and many global indexes are already at all-time highs, a lot of retail investors are sceptical about buying stocks at these valuations. As such, there is now more interest from retail investors to buy and store gold as an investment."
Recently, the DGCX announced that it was considering whether to launch a new spot gold contract designed to be used by retail investors and traders. The DGCX has signed a Memorandum of Understanding with the Dubai Multi Commodities Centre, to develop bullion products such as the proposed retail spot gold contract.
Gokaldas said, "Some of these retail investors don't want to bear the burden of storage, since the metal is really heavy, so one of the latest developments from the DGCX is potentially introducing a retail certificate for gold buying. Banks such as RAKBANK have been facilitating this for a while, but with DGCX coming up with smaller denominations of the gold contract it could be a big plus in the market, and will improve liquidity for those trying to buy and sell paper gold."
Another trend that has been driving the demand into gold is that precious metals have been the best performing asset class this year in terms of year to date return.
"One of the reasons retail demand has shot up in the last year is because there has been an approval of a mechanism by which gold is now Shariah-compliant as an investment. The Shariah Gold standard was launched in December 2016, and is yet to be fully mainstream as an investment product in the Gulf," he added.
The main difference between Shariah gold and regular gold investment is that Shariah gold mandates the contract be backed by actual physical vaulted gold. 
Gokaldas said, "Shariah Gold is a welcome addition to the gold community and enforces the ethical aspects of owning paper gold. It has to be traced to actual physical gold stored somewhere, allocated and segregated and cannot be used for speculation. This guidance applies to silver contracts as well."
He concluded by saying, "It is a phenomenal multi-year buying opportunity in gold at current prices. There is chatter amongst traders on the Wall Street regarding a phenomenon known as 'peak gold', which suggests the world will no longer see higher rates of gold supply than what we have already witnessed in the past few years." 
Impact of Value Added Tax (VAT) 
Gold in Dubai is attractive for its competitive pricing and this is one of the major reasons why the large population of expatriates living in the UAE prefer to buy gold in the city. With VAT being introduced in the GCC soon, states have agreed to collect a five per cent VAT on non-essential luxury goods, which includes gold in the form of jewellery, starting January 2018. Reportedly, VAT is expected to generate about  Dh12 billion in the first year alone in the UAE. 
- deepa@khaleejtimes.com 

• Gold and Forex
• Dubai