UAE gold sales increase by 20% in the second quarter of 2008

The same positive sales value increase was recorded in KSA as gold sales increased by 14% and 2% in other Gulf countries.

Additionally, Egypt witnessed an astounding sales increase of 48%.

The high and volatile gold price continued to dampen demand in tonnage terms during Q2, particularly for jewellery.

While the average gold price, at $896.29/oz, was well below the peak of $1,011/oz seen in mid March, it nevertheless represented a 34% rise on the average price of Q2 2007.

Total identifiable demand fell 11% in UAE, 15% in KSA and 24% in other Gulf countries.

Similar to the case in Q1, there was a notable exception in Egypt, where gold demand increased 10% in Q2 of 2008.

The rise in the gold price provoked a surge of both jewellery and investment buying in Egypt due to the widespread belief that the price was going to rise further.

The surge in gold price affected markets worldwide. India was the biggest contributor to the fall in gold demand during Q2, as it was in the first quarter.

Both jewellery and investment demand were severely affected by the high and volatile gold price and higher local inflation, which has squeezed disposable incomes.

Jewellery demand in Q2 was down 47% in tonnage terms on the levels of a year earlier, while net retail investment fell 41%.

Indian demand also fell in US$ value terms, by 29% in jewellery and 20% in investment.
Other major gold consuming nations experienced a more mixed quarter.

On the jewellery side, only China and Egypt experienced a rise relative to a year earlier levels in tonnage terms.

Countries and regions that suffered the largest decline in percentage terms (apart from India) included the US (-30%), Taiwan (-20%) and the UK (-20%) and the other Gulf countries (-24%).

Nevertheless, the fact that the dollar spends on jewellery in most countries remains above last year's levels is encouraging given the current economic environment.

Jewellery demand in the Middle East, which accounts for more than 90% of total offtake in the region, was 12% lower in tonnage terms in the second quarter of 2008 relative to the previous year.

However, the decline in annual terms was exaggerated by a strong result for the June quarter 2007.

Furthermore, demand in the most recent quarter remains well above the levels of a year ago in value terms.

Like many other parts of the world, inflation is squeezing disposable incomes. Inflation in Saudi Arabia recently hit double digits for the first time since the 1970s.

Nevertheless, the region is in a much stronger position going forward than most other parts of the world.

The pain of higher petrol prices on consumers is significantly lower and high oil prices have a stimulatory rather than contractionary effect on economic activity.

In Dubai, the centre of jewellery demand in the UAE, an increase in tourist numbers had a positive influence on jewellery demand, especially towards the end of the quarter when the Dubai Summer Surprises campaign started.

The second quarter also saw the traditional pre-vacation purchasing of jewellery as gifts and an increase in advertising activity within the jewellery sector in both the UAE and Saudi Arabia.

Historical trends suggest a strong correlation between jewellery campaigns and spending patterns in those markets, and this quarter was no different.

The fact that the 21K market which dominates sales has been more strongly affected by high prices than branded jewellery partly relates to the success of targeted jewellery advertising.

This advertising coincided with the upcoming wedding and pre-vacation gifting season.

Retail investment tends to comprise a relatively small component of total offtake in the region.

In the UAE, investment demand eased back from a very strong March quarter, but remains well above the levels of last year.

The move back into bars and coins that started last quarter has continued.

The Middle East region is not experiencing the same economic concerns as other parts of the world, and this positive economic outlook should enable the recent resilience in gold demand relative to other parts of the world to continue.

Nevertheless, the level of demand will continue to depend on both the gold price and its volatility.

James Burton, CEO of World Gold Council said:

'As expected, the continued high and volatile gold price, together with economies across the globe witnessing inflationary pressures and a tightening of consumer wallets, dampened consumer demand for gold in tonnage terms during the quarter. Despite this, consumers are continuing to spend more money on gold, even if they no longer get as much of it. This reinforces the positive attitude and buying intentions of consumers, and indicates that despite price increases, gold demand remains robust.'