Why UAE Shoppers Aren't Panicking Over Gold?

Diwali Gold Buying in UAE: Why Shoppers Aren't Panicking Despite Price Drop?

In the United Arab Emirates, the Diwali festival is traditionally one of the busiest periods for gold and jewelry purchases. According to religious and cultural traditions, buying gold in the days leading up to Diwali symbolizes prosperity and luck; thus, many residents annually expand their jewelry collections or invest in precious metals at this time. However, this year the price of gold took an unexpected turn – following a peak, it dramatically declined in reaction to the global market, resulting in short-term losses for many buyers.

Short-term Price Drop After Diwali

Gold prices in Dubai rose significantly on October 21, directly during the Diwali celebrations. The price of a gram of 24-karat gold reached a record 525.25 dirhams, while the 22-karat variety was trading at 486 dirhams. Buying enthusiasm during this period is always notable, but this year the demand was fueled by global uncertainties and increased interest in safe-haven investments.

Just a few hours later, however, prices started to plummet drastically. On the evening of October 21, the price of 24-karat gold fell to 485 dirhams per gram, marking a drop of nearly 30 dirhams. The 22-karat gold also showed a similar decline, sinking to 458 dirhams. This movement was caused by international exchange rates, marking the largest one-day drop since 2013.

What Does This Mean for Shoppers?

Residents who purchased at the peak faced the devaluation of their portfolios the very next day. For a 10-gram 24-karat purchase, the 'on-paper' loss could have reached 300 dirhams, whereas a 100-gram transaction could have incurred an amount as high as 3,000 dirhams. These figures naturally represent theoretical losses—actual damage only occurs if the gold is sold under such conditions.

Most shoppers, however, do not acquire gold for speculative purposes but as a long-term investment or as a culturally significant asset. Such fluctuations are not uncommon in the precious metals market – those who think long term do not have this as a primary concern.

What is Behind the Price Drop?

The fall following the pre-Diwali surge was triggered by profit-taking in international markets. After weeks of rising gold prices, many investors closed their positions, leading to a sudden selling spree. This was compounded by geopolitical events, interest rate expectations, and the strengthening dollar, all influencing gold's global market price.

As of October 22, the price fell to 484 dirhams per gram, while on the morning of October 23, the price of 24-karat gold was around 496.5 dirhams. The 22K, 21K, and 18K variants were selling for 459.75, 440.75, and 377.75 dirhams, respectively. Although significant, the decline is not unprecedented in the market's history.

Why Do People Continue to Buy Gold?

Many believe gold is one of the most stable long-term value preservation assets. While stocks, real estate, or cryptocurrencies show significant volatility, gold has been considered a reliable investment for millennia. A large portion of UAE's residents – particularly Asian communities – are also culturally strongly connected to gold. Diwali offers not only spiritual but also financial incentive to invest, which many exploit regardless of the current exchange rate levels.

Some shoppers prefer to store their savings in gold rather than uncertain cryptocurrencies. Moreover, jewelry is not just an investment but also wearable value, which can be passed down through generations.

How Are the Market and Jewelers Responding?

Jewelers in Dubai's gold market are accustomed to rapid price fluctuations and strive to educate buyers to ensure such changes do not affect their decisions. Not only the market price of gold is important during purchases, but also the cost of craftsmanship, premium, and the design value of the item. Therefore, the actual loss typically doesn't just arise from the per gram price of gold.

Market players suggest that the current price drop is more of a temporary correction and not a cause for concern. Many take advantage of lower prices for further purchases, especially ahead of the upcoming Christmas and New Year holidays.

Summary

The price drop following Diwali purchases could have indeed caused short-term losses for some buyers, particularly those participating at high rates with speculative intent. However, for the majority, purchasing gold is not only a financial decision but a tradition and long-term value preservation. Price movements are tied to global trends, so those who are patient might eventually realize gains from what currently appears to be a loss-making investment.

Dubai's jewelry market remains active and vibrant, and gold, as a commodity, will likely continue to play a significant role in the residents' financial strategies.

(The source of the article is based on conversations with investment experts.)