VAT Impact? UAE jewellery demand hits 20-year low

Gold sales glittered during Dubai Shopping Festival and the last weeks of 2017 as residents rushed to buy jewellery

Despite a decent surge in sales ahead of VAT, gold jewellery demand in the UAE fell for the fourth consecutive year in 2017, falling two per cent to 20-year low, according to World Gold Council data.

"Demand in the UAE received a small boost in December as consumers rushed to make their purchases before a five per cent value-added tax(VAT) was imposed in January. But the 16 per cent year-on-year gain in Q4 demand failed to rescue the market from a fourth consecutive annual decline as 2017 demand was down two per cent to a 20-year low of 42.8 tonnes," the Council said in a report released on Tuesday.

In 2016, the UAE saw gold jewellery demand reached 43.4 tonnes. In Q4 2017, UAE gold jewellery demand reached 10.6 tonnes as against 6.9 tonnes in the same quarter last year.

The gold sales glittered during Dubai Shopping Festival and the last weeks of last year as residents and tourists rushed to buy gold jewellery. Some of the major gold jewellery retailers in Dubai registered record sales during these days as the marriage and festival seasons kicked in. On January 1, the UAE levied five per cent VAT on gold jewellery but spared metals with more than 99 per cent purity from taxation.

Bal Krishen, CEO, Century Financial Brokers, blamed consistent decline in gold jewellery sales to its lacklustre performance as an investment asset.

"Gold needs to continue to outperform as an investment for the sales to grow, as millennials do not see gold to be the best star of value," Krishen said.

Gold started the year on a very bullish note and this trend would be expected to continue given the volatility seen in world equities, he said, adding that the yellow metal "has a strong resistance at $1,530 an ounce and we expect gold to hit these prices during the course of 2018."

Total bar and coin demand in the UAE dropped 8 per cent to 5.5 tonnes in 2017 from 6 tonnes in the previous year. Demand in Q4 2017 also dropped 10 per cent to one tonne as compared to Q4 2016.

According to World Gold Councildata, average consumer demand per capital in the UAE dropped to 4.8 grammes in 2017 from 5 grammes in the previous year.

Middle Eastern demand recovered in Q4 but H1 losses dominated annual demand was down 1.1 per cent year-on-year. Iran was the strongest performer in 2017: Q4 was its tenth consecutive quarter of y-o-y growth. Annual demand gained 12 per cent to 45.4 tonnes, the highest since 2013.

Globally

Globally, gold demand rallied in the closing months of 2017, gaining six per cent year-on-year to 1,095.8 tonnes in Q4. But it was too little, too late as full year demand fell by seven per cent to 4,071.7 tonnes.

According to World Gold Council, full-year gold jewellery demand increased by four per cent to 2,135.5 tonnes - the first year of growth since 2013.

India and China led a four per cent recovery in jewellery, although demand remains below historical averages. Increased use of gold in smartphones and vehicles sparked the first year of growth in technology demand since 2010.

India's 12 per cent year-on-year improvement was partly due to a very weak 2016. Demand fluctuated on changes in tax and regulation.

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