Gold demand down in Middle East

Physical demand for gold across the Middle East has been hampered by the high gold price, economic difficulties and war. Meanwhile, scrap gold continues to be generated on a major scale, particularly in Egypt and Saudi Arabia.

The Egyptian economy has been weakened by a further depreciation in that country’s pound, which occurred following the government’s decision to float the currency. Despite the float, an unofficial exchange-rate market remains, and the actual rate is as much as 20% below the official rate. Moreover, with sustained strong scrap supplies, the local gold market remains at a discount to London, ensuring the continued export of old gold.

Gold offtake in the United Arab Emirates, though still down, appears to have fared better than most in the region. Fresh bullion flows into the regional hub of Dubai have been reduced, as scrap supplies displaced new gold demand. The recent change in India’s gold import duty has resulted in uncertainty in bullion exports. However, Dubai’s proximity to India, coupled with a stable environment and reasonable freight rates, should ensure that Dubai maintains its exports to that country. This process is being aided by the Dubai Metals and Commodity Centre (DMCC), which hopes to increase the Emirates’ share of global bullion flows.

There are concerns about the Saudi Arabian government’s decision to enforce its “Saudi-ization” policy in the gold sector. Since early March, gold jewelry retailers have been obliged to employ only Saudi nationals in their shops, whereas previously, a good number were expatriate workers from Yemen and elsewhere. The difficulty of replacing these positions with suitable Saudi staff is causing some shops to close temporarily.

— The preceding is an excerpt from a report by London-based GFMS Metals Analyst Ben Atkinson, who recently visited Turkey, Egypt, the United Arab Emirates and Saudi Arabia..