Though the Indian government’s many measures to discourage gold imports seems to have clamped the door shut on top exporter Dubai, where trade activity has slid 60% over the last two months, Dubai’s premier commodities exchange appears to be moving from strength to strength as it takes advantage of the volatility in the precious metals market as well as movements in the Indian rupee.
The Dubai gold bourse has posted a 69% growth in the third quarter, helped by price volatility brought on by economic uncertainty in the United States and the upcoming festive season in India.
India has long been one of the biggest markets for Dubai exports. Gold, precious stones, pearls and metals accounted for almost half of UAE exports to India during 2012. The region reportedly handled more than 25% of the world’s physical gold, valued at $70 billion.
Though in the first half of the year, Dubai’s exports of gold and jewellery to India stood at $21 billion, 10% above last year’s figure, things took a dramatic turn in August.
By then, the Indian government had ensured that banks followed the new rules on imports, which in turn, ensured that gold shipments completely ran aground.
“Gold imports into India virtually stopped since July 22, when the Reserve Bank of India introduced the 80/20 rule, which mandated that 20% of all imports had to be re exported. There were no clear guidelines on how the rules would work. This deterred importing agencies from bringing in supplies, fearing they would be stuck at the airport,” said Manpreet Singh, bullion trader.
With imports forcibly brought into a customs bonded warehouse before being sent to buyers post the imposition of the new rules, the squeeze on physical gold continues in India, he added.
However, with every import duty increase initiated in India, the gap between the retail cost of jewellery in the UAE and what one has to pay in India has considerably widened. Along with a weak rupee against the dollar, the gains tend to multiply for an Indian buying jewellery from the UAE.
For instance, in Dubai, a gram of 22 carat gold was quoting at Rs 2,552, while in India it was Rs 3,095 a gram. For an Indian visiting Dubai, this has been a lucrative time to buy the precious metal.
Dubai has nearly 100 gold jewellery manufacturing units, in addition to a large number of free zone facilities operating in the Dubai Gold and Diamond Park and the Dubai Multi Commodities Centre.
Statistics revealed by the Exchange earlier this month show that the year to date volumes on the Dubai Gold and Commodities Exchange jumped 69% over last year. The growth was supported by a 2% year on year rise in monthly volumes in September, which saw 988,269 contracts worth $28 billion being traded.
The Exchange’s precious metals segment was a key performer in September. Volumes in gold futures climbed 23% from last month, driven by increased price volatility in precious metals. Silver futures too grew 53% from August, the Exchange said in a statement.
Gary Anderson, CEO of the Exchange noted earlier this month: “September has seen increased price volatility in the precious metal driven by US economic uncertainty, regional geo political events and the upcoming festive season in India, one of the world’s largest gold consumers.”
In 2012, Dubai’s gold and jewellery exports in 2012 were valued at Dh 104 billion and accounted for 64% of the total non oil exports from the Emirates. Reexports of gold jewellery and other ornaments made of precious metals accounted for Dh 68 billion, or 21% of the total non oil re exports from Dubai during the same period.
Ramesh Sharma, principal at a bullion export house which trades with Dubai operators at the Exchange told Mineweb, “India’s many import restrictions could have spoilt the party this year, but Indians living in UAE and tourists are still buying.”
“Exports, however, are sliding and the real test will be in the fourth quarter, when data from the Exchange will show just how badly squeezed precious metal exports to India have been,” he added.
The Exchange’s total trading volume crossed a record $1 trillion in April this year.