Under streets and alleys covered by roofs to protect window shoppers from the intense sun, more than 300 stores peddle everything from ingots to Bedouin jewellery. The Dubai Gold Souk had become one of the largest such marketplaces, offering tax-free precious metal.
Now, with the plunge in crude throttling economies across the Middle East, gold buyers are harder to find. Demand for the metal is slowing in the region and Dubai has experienced a drop-off among some visitors. Shopkeepers say sales are declining because tourists from Saudi Arabia and Russia have less cash to spend. Sellers offer discounts for gold that two years ago fetched a premium.
“The market is dead,” said Jeffrey Rhodes, who has spent 27 years in Dubai’s gold industry and founded Rhodes Precious Metals Consultancy DMCC. “There’s no real demand here.”
The city’s history in gold jewellery dates back to the Bedouin nomads who roamed the Arabian desert, and it has long been a centre for trading the metal. It is a bridge between Africa, home to some of the world’s richest mines, and the jewellery markets of India, whose citizens buy more gold than anyone else on the planet.
Even with fewer shoppers in the market, which rose to prominence in the 1940s and is spaced across two buildings as high as six floors, Dubai is still a major trading hub. The weight of all the gold jewellery on display comes to about 25 tonnes, the same as five Indian elephants, according to an association representing the vendors.
Lower oil prices and political turmoil across the Middle East and Russia are hurting Dubai tourism. With Brent crude futures down 43 per cent from a peak in June, oil revenue is slumping for the world’s largest producers.
Russia is heading towards a recession and its currency has plunged, while Saudi Arabia is on track for the slowest economic growth since 2009.
Shopping trips from the Middle East “are fewer and shorter, and they spend less”, said Gerhard Schubert, founder of Schubert Commodities Consultancy DMCC and a member of the Dubai Multi Commodities Centre’s responsible sourcing committee. Sales at Dijllah Jewellery, which sells jewellery and gold bars wholesale, have declined 40 per cent this year, according to its managing director Mohammed Hammoodi Hashim.
Middle Eastern demand for the metal fell 23 per cent in 2014, the biggest drop in at least four years, data show from Metals Focus, a London-based research firm. Russian visitors to Dubai fell 36 per cent in February.
“We are still surviving, but everyone is worried about the future,” Mr Hashim said. He said a kilogram bar of gold in Dubai this month costs 20 cents an ounce below the London spot price, a sign of weak demand for the metal, compared with a premium of $1.50 in 2013. An ounce of gold fetched $1,204.68 in London yesterday.
The decline in Dubai’s gold market is temporary, according to Mohammed Alashrafi, who runs five stores in the souq as an owner of Sama Al Khaleej Gold & Jewellery Trading. He is in the process of opening another store.
“Things are going to pick up again,” Mr Alashrafi said. “The market in the region goes quiet from time to time, but it will never die.”
Other parts of the industry are expanding. Kaloti Precious Metals, a gold refiner, plans to open a plant in Dubai later this year that can process 1,400 tonnes of the metal annually.
The lack of interest in gold extends beyond the physical market. Trading in bullion futures on the city’s metals exchange is at the lowest in 19 months, with contracts changing hands an average of 1,136 times over the past 15 days.
For now, most shopkeepers in the gold souq are planning to ride out the slowdown, according to Chandu Siroya, vice chairman of the Dubai Gold and Jewellery Group. Sales at his store fell at least 10 per cent in the first quarter, he said.
“We’re being hit by a combination of lower oil prices and lower tourism,” Mr Siroya said. “This year is going to be tough.”