Gold rates

Dubai: Gold could soon outshine diamonds as the most precious object. It could be sooner than later, when one fine day people might start saying "gold is forever", replacing diamonds in the proverbial saying, especially the way the price of the yellow metal is rallying.

Interestingly, the high price of gold jewellery has hardly dented investor appetite even in the economic downturn. Last weekend's crowd at the Gold Souq, due to Diwali, was a reflection of that trend.

Gold's price has appreciated 31 per cent within a year, reaching a record high of $1,050 per ounce, compared to $804 in October 2008 which, according to gold traders, makes it the best investment option.

"From last year's Diwali to this Diwali, gold prices went up by 31 per cent — giving a very high return to investors and jewellery buyers," Shamlal Ahmad, managing director of Malabar Jewellery LLC, told Gulf News.

"Due to religious and social reasons, Indians will continue to buy gold, which will help keep global gold demand steady. It could eventually hit the $2,000 per ounce mark by 2015-2017. So investment in gold won't go in vain."

Indian women continued to buy gold jewellery this Diwali, which saw the market cross the historic price of $1,055 per ounce.

Investment demand for gold remained strong in the second quarter of 2009, rising 46 per cent on year-earlier levels, as investors continued the flight to quality, according to the World Gold Council (WGC).

"Overall demand for gold fell back from recent high levels as weak economic conditions and high gold prices combined to impact demand," according to the latest Gold Demand Trends report published by WGC.

Although gold demand remains high on a historical basis, total demand in the second quarter of this year was down nine per cent on the levels of a year earlier, a six per cent decline in dollar value terms to $21.3 billion, it said.

"The global economic downturn has certainly had a major impact on the purchasing power of gold consumers, as have the high local prices and dollar volatility. However, we continue to see pockets of solid demand in many non-western markets on dips in the gold price. We expect consumers, particularly in India, to look for opportunities to buy back the jewellery that has been recycled over recent quarters," Aram Shishmanian, CEO of the World Gold Council, said in an earlier statement.

Despite high prices, South Asians, especially south Indians, are still buying jewellery — mostly for cultural reasons, which could return rich divid-ends, Ahmad said.

"On an average, the gold price has been appreciating at a steady rate of 15 per cent — much higher than bank interest rates. With property prices down and the stock market looking gloomy, gold remains the best bet for retail investors," Ahmad said.

That's one of the reasons why Malabar Jewellery — a company with annual turnover of more than Rs55 billion ($1.18 billion; Dh4.35 billion) — is expanding its network of retail outlets in the middle of the global financial crisis. It recently opened its 32nd outlet and its seventh in the UAE.

Expansion

The company, whose annual revenue in the UAE is Dh380 million, is investing more than Dh200 million in expansion. The group, which has a diversified portfolio, employs more than 2,700 people in India and the Gulf.

"With the US currency coming under pressure and frequent fluctuations in currency exchange rates, people are losing faith in paper currency and we can say gold is a hard currency since it is highly liquid next to cash. So in this [high] price also people can consider gold as a better opportunity as an investment," Ahmad said.

Retail investment, which includes demand for physical gold in the form of bars and coins, had another healthy quarter.

Net retail investment was up 23 per cent over the previous quarter and 12 per cent above the level of the second quarter of 2008 as investors, specifically those in western countries, continued to seek out gold for its unique wealth preservation qualities, the WGC said recently.

Roy W. Jastram, author of The Golden Constant: The English and American Experience, said: "One of the most striking aspects of gold is its ability to hold its real value over time.

"Looking not just at the US and the UK, but also at countries such as Germany, France and Japan, we see that gold has proven to be a safe haven through some of the darkest times of the 20th century. And it has also proven its worth through many difficult economic periods, including the current financial crisis.

"The underlying reasons gold appeals to humans — the need for security and the desire to possess and enjoy beauty — do not change. And the behaviour of its purchasing power over the centuries is yet another of its elements of constancy."

Buyback scheme

Shamlal Ahmad's company offers cash back for return of gold.

"This is a unique scheme. A buyer gets 100 per cent cash back at the market rate when returning gold purchased from our outlets," Ahmad said.

"This is very popular and helps investors gain as the price appreciates."

With this scheme, gold becomes a virtual precious currency.