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The entire world is battling a serious health issue that has shaken economies and markets across the globe, we are talking about the novel coronavirus. The outbreak of this deadly virus began in the city of Wuhan located in the Hubei province of China that later spread across the entire world. Considering the potential and thread that this microorganism can cause to mankind WHO declared it as a pandemic.
In order to combat the deadly pathogen, many countries have declared a temporary state of lockdown which will lower down the pace of infection. An indirect impact of the COVID-19 outbreak-imposed lockdown is that many industries and markets have suffered extensively. One such industry that has suffered the impact of lockdown and coronavirus is the gold industry.
Dubai located in the UAE is known for its nightlife, lavish shopping malls, luxury cars, glamour, and gold souks. The emirate is also known as the city of gold as it consists of one of the biggest gold markets all across the world. People visiting Dubai are attracted by beautiful designs, variety, and craftsmanship. Furthermore, the lenient taxation system, low prices, and a vivid diversity in designs and styles make Dubai the ultimate gold paradise.
Just like the other markets the novel coronavirus has affected the gold market of UAE. Not just the demand but the prices have dropped exponentially over the course of the last 6 months which has led to a state of chaos amongst traders and merchants.
As mentioned earlier the iconic gold souks of Dubai crown the place as the city of gold. The demand curve of gold in Dubai within the past three months since the inception of the coronavirus outbreak gives mixed signals. All in all approximately 9.5 tons was sold which is 11% less than the sales recorded in the year 2019.
However, when we compare the demand curve of the last two-quarters of 2019 i.e. July to Sept and Oct to Dec with the demand curve of the first quarter of 2020 there is a substantial improvement. In quarter 3 of 2019 5.4 tons and in quarter 4 (8.6 tons) of gold were sold. Whereas 9.5 tons of gold was sold in the first quarter of 2020.
The change in statistics is mainly due to the fact that the majority of tourism-related sales of gold based on the gold rate in Dubai did not happen this year due to the coronavirus outbreak. Most of the iconic gold shops of Dubai were close till late march and the majority of buying happened by the UAE based buyers that include both expatriates as well as UAE nationals. Furthermore, the major portion of buying that happened in the UAE was during the DSF promotions.
Recently the gold markets with various other markets in the UAE were reopened under strict supervision and guidelines approved by the government. The number of buyers in the shop is restricted along with social distancing norms. The demand is yet to pick up and the current rate for 22k is 194Dh (the gold rate in UAE is dynamic and hence subject to change).
According to financial experts and analysts, the demand and growth will remain at a halt for a few months as a side effect of the lockdown. Moreover, it will take a minimum of one year before the situation normalizes and the demand along with customers starts to increase.
As the demand in the markets is quite a majority of factories and workshops that process and manufacture gold jewelry are not operating at their full-fledged capacities. Furthermore, based on the social distancing guidelines and regulations to be followed by the WHO the staff in retail outlets has also been reduced to prevent the spread of novel coronavirus.
The iconic gold souks and gold markets of UAE will experience the impact of COVID-19 throughout the year. With suffering economies and lost jobs, it is predicted that the gold sales will be affected by the end of next year. Not just gold all consumer-based sectors will face the impacts of the coronavirus outbreak for the next year or so.
The price of gold, in general, has risen by 35% within the course of 12 months mainly because of the inflation countering abilities of gold. Funds and central banks all across the globe have started to stack gold as a preventive measure to counter the impacts of inflation and the coronavirus outbreak.
In a Nutshell
Considering the unique abilities of gold to combat inflation and geopolitical crisis the current scenario is perfect to invest one’s surplus capital in gold. The market will continue to suffer for a few months before the situation normalizes and the gold souks sell the same amounts of gold as before.