U.A.E Precious Metals Hub Seen Growing as Location Feeds Demand

The United Arab Emirates will grow as a precious-metals trading hub as more overseas companies turn to the country because of its location near consuming nations, according to the Dubai Multi Commodities Centre.

Dubai accounts for about 25 percent of global physical gold trade, Gautam Sashittal, chief operating officer of government-owned DMCC, said in a Sept. 30 interview at the London Bullion Market Association’s annual conference in Rome. Gold trade in the country totaled $45 billion in the first half of this year, compared with $70 billion in all of 2012, he said.

The DMCC is the U.A.E.’s largest free zone offering more than 7,300 companies, a number of them in the precious metals industry, tax-free status, Sashittal said. While gold is heading for the first annual decline in 13 years as some investors lost faith in the metal as a store of value, the plunge to a 34-month low in June boosted purchases of jewelry, bars and coins in Asia. India and China are the biggest gold consumers.

“So long as we provide world class infrastructure, products, services and appropriate regulation, the trade can only grow,” Sashittal said. “Dubai is a natural location. It’s ideally located between resource producing countries and consuming countries.”

Gold for immediate delivery traded at $1,292.98 an ounce by 11:30 a.m. in London, set for a 23 percent drop this year. Prices that rebounded from $1,180.50 in June compare with a record $1,921.15 in September 2011.

Physical Demand

The slump boosted global bar and coin sales 78 percent to a high in the second quarter, the London-based World Gold Council estimates. Appetite for those items contrasts with sales of gold from exchange-traded product holdings, which fell 702.7 metric tons, or 27 percent, this year.

The Dubai Good Delivery standard was developed by the DMCC in 2005 and there are 16 DGD refineries across 10 countries. They signed up in June 2012 to the DMCC’s responsible sourcing guidelines, based on Organization for Economic Cooperation and Development guidelines.

All the refineries should comply with the guidelines, or other accepted responsible-sourcing audits, Sashitall said. One of the three DGD refiners in the U.A.E. passed the audit and the other two should complete the process in the coming weeks, he said.

“The DGD standard and DMCC’s responsible sourcing protocol and process are robust and internationally accepted,” Sashittal said. “Once refineries have passed the audit process, global acceptability of that gold becomes easier. That in turn allows the Dubai market, and participants trading via Dubai, to grow.”