DUBAI/KOCHI (Commodity Online): Even as jewelers are vying for space in Kerala, the scene in Dubai is quite different with several jewelers in the global gold headquarters facing closure due to lack of demand.

The slump in demand for gold jewellery due to high prices of the yellow metal has left jewelers in Dubai in the lurch and several of them are facing closure.

According to the World Gold Council (WGC), in the third quarter of 2009, the global demand for gold has dropped 34 per cent.

UAE was one of the hardest hit regions in the Middle East, with demand for gold jewellery dropping 39 per cent in the third quarter year-on-year.

Demand for gold for investment declined even further, down 52 per cent.

The weak result for the latest quarter reflected the combination of the very high gold price, reduced tourist inflows, fewer expatriate workers, in particular workers from India, and the flow-on effects of the property downturn, the WGC report said.

The report found that the Dubai market was under pressure as many of the emirate’s jewellers invested their profits in the property sector, which has declined by nearly 50 per cent in the last year.

Left with cashflow problems, jewellery retailers have been forced to liquidate inventories to meet margin calls and make repayments on gold loans. As yet, there have not been any notable closures of jewellers, but this is probably inevitable if demand conditions do not improve, the report forecast

However, it cautioned that the quarterly fall was distorted in part by the abnormally high sales in the third quarter of last year, when consumers bought gold to hedge against the increasing effects of the economic crisis. Total consumption was only 6 per cent lower than the average level of the past five years, the WGC said.

The WGC figures confirmed a tough quarter for the country’s jewellery industry, which has been preoccupied by a sudden shake-up in leadership at Damas, the largest jeweller in the Emirates. The company’s former chief executive, Tawhid Abdullah, stepped down last month after disclosing $165 million worth of transactions without shareholder approval, which were mostly channelled into property.

The fall in the country’s gold consumption level outpaced the global drop of 34 per cent, including a 30 per cent decline in demand for gold jewellery. But globally, consumption was up compared with earlier this year; it rose 17 per cent from the second quarter, and was 39 per cent higher than the first quarter.