Last Updated : 26 February 2009 at 15:35 IST

Gold investments to boom in Middle East

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Commodity Online
DUBAI: Amidst dwindling property prices, increasing unemployment and dip in equity trading, there is a glittering line of hope as far as gold investments are concerned in the Middle East nations. Gold investments across the Gulf countries are set for a sharp rise this year.

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According to the World Gold Council (WGC), several Middle East nations including the City of Gold, Dubai, are going to be action centers for gold investments. “We feel Middle East nations are going to witness lots of investments in gold sectors. Several global companies including gold mining processing and production companies are looking at Middle East for major investments,” says Lama Al Saheb, head of marketing WGC head of marketing in Middle East.

WGC has predicted that investments into bullion industry, especially in gold and silver sectors, will see an upswing this year, despite the global recessionary trends.

In fact, investments into the gold sector have already started pouring into Middle East countries.

Last week, Global Force Capital and Elettronica SPA from Italy announced a joint venture to build a plant in Abu Dhabi for refining and fabricating bars and grains of pure gold, silver and other precious metals. It will be the first gold and silver refinery in Abu Dhabi and is set to be the largest dual refinery in the region.

The company is a new offset joint venture facilitated by the Offset Program Bureau (OPB), in line with the requirements of the UAE Offsets Program, which aims at adding value to the UAE economy through defense equipment procurements made by the UAE Armed Forces. Through this joint venture, Elettronica is seeking to fulfill its offset obligation arising from a defense equipment supply contract with the UAE Armed Forces.

The plant will be set up at a total cost of AED 67.3 million ($ 18.3 million), 51% is owned by Khalid Ahmed Al Mansoor, Chairman of Global Force Capital and the remainder by Elettronica and other investors including the technology partners. The project will be funded through a combination of equity and debt.

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According to a WGC report, gold investment in Middle East jumped 38 per cent in 2008 compared with 2007's fourth quarter. Saudi Arabia saw a massive 300 per cent jump in investment demand, Egypt 67 per cent and other Gulf countries registered a two per cent increase.

While UAE gold jewellery sales increased by 17 per cent in 2008 to exceed Dh13.7 billion compared with Dh11.4 billion in 2007, total gold demand in the Middle East was up one per cent in the fourth quarter of 2008 compared with 2007, said the Gold Council report.

Nearly 90 per cent of total consumer offtake in the region is in the form of jewellery. Weakness in this sector which was down seven per cent largely offset strong growth of 139 per cent in the net retail investment.

Saheb says one reason for the spurt in gold investments in Middle East is the collapse of stock markets and the global economic meltdown. “Investors and traders are nervous about the idea of investing in areas like real estate. Many people see gold as the best and dependable investment,” he added.

Dubai, known as the City of Gold, that handles the major chunk of gold trading in Middle East, has an impressive history and established trade in the precious metals industries. Dubai is also home to the Dubai Gold and Commodities Exchange (DGCX) that has a successful trading operations with gold futures contracts. The DGCX gold contract units are for 1 kilogram of gold (0.995 fineness) deliverable at DGCX approved vaults in the United Arab Emirates (UAE).

Dubai’s gold import registered a significant increase of 21 percent to 674 tonnes in 2008 as against 559 tonnes in 2007 while exports rose 29 per cent to 371 tonnes compared to 287 tonnes in the previous year.

According to Dubai Multi Commodities Centre (DMCC, gold trade in Dubai touched a record $29 billion in 2008 or up by 53 percent as compared to the $19 billion in the previous year, owing to the mass inflow of scrap gold when gold prices rose to all time high in 2008.

DMCC data shows that the total value of the gold traded through Dubai in the second half of 2008 reached $15.99 billion, up 57 per cent compared to $10.16 billion during the corresponding period in 2007 and up 22 per cent compared to $13.07 billion in the first six months of 2008.