How UAE customers are coping with record gold prices in run-up to Dhanteras and Diwali

Karan Singh, an Indian entrepreneur who operates restaurants in the UAE, has been investing Dh5,000 ($1,361) each month to buy gold bars for the last four-and-a-half years.

Although gold prices have recently been hitting record highs, Mr Singh, 41, says it does not make a difference to him since he invests using the dollar cost averaging method. This involves investing the same amount of money at regular intervals over a certain period of time, regardless of price.

“We buy jewellery for the family during Diwali, no matter what the gold price is. There are no excuses not to buy gold on this occasion,” he says. “Even though I may be paying more for gold now, I know that I have recovered that money with my previous investments. So, I am not sustaining a loss.”

Gold prices hit a record high of $2,758.37 on October 23 as the conflict in the Middle East, along with uncertainty around the US Federal Reserve outlook and American election has stoked demand for safe-haven assets. The precious metal has surged by about a third this year, hitting successive highs, with the rally intensifying in the last couple of months as the Fed pivoted to cutting interest rates.

The anticipation of a tight race between Donald Trump and Kamala Harris in the US presidential race has also pushed investors towards safer assets like gold, bolstering its appeal despite a stronger US dollar, says Mohamed Hashad, chief market strategist at Noor Capital.

“Adding to the risk-averse sentiment, geopolitical concerns, particularly the escalating conflict in the Middle East, have further boosted demand for safe assets,” he says.

“Fears were heightened after an attempted drone attack on Israeli Prime Minister Benjamin Netanyahu, along with reports of Israel planning strikes against Hamas, Hezbollah, and potentially Iran.”

Money managers have also added to the strength of the rally, with hedge funds increasing net-long positions in gold in recent sessions and investors adding the precious metal to exchange-traded fund holdings. Central banks’ purchases of bullion are also driving up its prices.

Mr Singh buys gold bars as an alternative investment, which helps diversify his portfolio and hedge against volatile stock investments.

“I don’t buy [gold] for religious reasons or attach emotional value to these purchases,” he says. “With the geopolitical situation in many countries, I feel gold prices will increase in the next 12 to 14 months at least.”

He prefers to buy gold bars from wholesalers as they offer a better price than retail jewellers. He also makes sure he gets a bill for his purchase.

“The advantage of getting a bill is that you can sell it back to them. I have liquidated gold when I needed to make a big purchase elsewhere,” Mr Singh says. “The only risk to buying gold bars is where to store them. Gold ETFs can be considered as an alternative.”

Afrin Anosh, a 25-year-old Sri Lankan who works in public relations in the UAE, says her family usually buys gold as a tradition during a special occasion or festival, irrespective of the commodity’s price.

The family also sets aside a certain amount every month to buy gold. However, amid high bullion prices, they have prioritised buying coins and bars instead of jewellery, since merchants tend to deduct service fees and making charges.

“New styles tend to come during the festive season. But going by how gold prices have increased, I am not sure if we will buy gold. It’s off-putting to see the price of even a simple gold necklace,” she says.

Harsh Patni, director of Jewel Trading in Dubai’s Gold Souk, says customers are delaying gold purchases amid high rates because they are more price-conscious.

If they like a particular jewellery design, they want the jeweller to customise it for them at a lower weight or they buy lightweight jewellery, he explains.

“As a jeweller, we keep altering designs to cater to customer preferences and are flexible. We are competing against 500 jewellers within a 2km radius in the Gold Souk,” Mr Patni says.

“Our diamond jewellery is unique. But in the 22-carat gold market, the product ranges in other jewellers are quite similar, so pricing is the main differentiator.

“We offer different schemes to gain customer confidence, such as with buy-now-pay-later company Tabby or gold price lockdown. Instalment payment schemes provided by banks have also been a big game changer in the market.”

Mr Patni says that high-end customers don't look at price. They usually buy gold bars, polki and kundan jewellery. The 22-carat gold segment caters more to the middle and lower segments of the population, he adds.

“There are two types of customers who buy gold during the festive season. One segment is set on their values and buy a gold or silver bar every Dhanteras or purchase gold coins to gift their employees,” according to Mr Patni.

“The other segment includes newly-married couples and young professionals who buy coins and bars as they feel gold is a good investment because it has yielded 30 per cent to 40 per cent returns in a year.”

More options could also hit the market soon. “Until now, only 18, 21 and 22-carat gold were in demand. But with gold prices going up, I feel even 10, 12 and 14-carat gold may be introduced in the UAE, so customers have alternatives to choose from,” Mr Patni says.

Meanwhile, India’s reduction of import duty for gold in July has dealt a big blow to the UAE gold industry, according to the retailer.

Before the cut, Indian tourists would travel to the UAE to buy gold because of the 15 per cent price difference, but now there is only a 6 per cent gap. This has resulted in a 10 per cent to 15 per cent drop in volume for the UAE’s jewellery market, Mr Patni reckons.

According to Aditya Singh, head of international business (jewellery) at Titan Company, India’s import duty reduction has “increased discussions” among tourists over whether it is viable to buy gold from the UAE. But buying in the Emirates guarantees pure gold, a diversity of designs and favourable prices for consumers, he adds.

Titan's jewellery brand Tanishq has not recorded a significant dip in demand because of the record gold prices. Demand for gold rises from October to March because of the heavy inflow of tourists to the UAE.

In the first few days of the festive season, Tanishq has recorded good growth compared to last year. “There is a certain section of people who may have saved a certain amount to be spent on gold during Diwali. Because rates are high, they might buy a slightly lesser grammage,” Mr Singh says.

Tanishq has launched a new jewellery collection for Diwali, called Nav-Raani and is offering several discounts and schemes, including up to 100 per cent off on jewellery making charges across its entire range.

Earlier this year, the retailer had also launched a programme called Drops of Gold, where a customer can purchase gold coins when rates are low. When they plan to buy a new item during Diwali, they can use these gold coins.

“We have observed that customers prefer to pay upfront for their jewellery purchase. We are talking to a few start-ups that offer save now, buy later schemes,” Mr Singh says.

Rashid Al Harmoodi, senior director for property management at real estate developer Ithra Dubai, says the Dubai Gold Souk Extension records a surge of local and international customers ahead of high-demand occasions like Diwali and Dhanteras every year. Almost 300 retailers sell gold and jewellery at the Extension.