Dubai gold refiners see shift in demand trend

Dubai has seen a complete reversal in the gold refining scene in the past two years. Until late 2008 almost all the gold that refineries in Dubai produced went to the jewellery markets. Now, close to 90 per cent of the gold that refineries produce go to back investment products such as Exchange Traded Funds (ETFs) and gold futures on exchanges across the world.

"It's a major shift. In 2008, almost 100 per cent of the gold we refined went to the jewellery market. Today 90 per cent of the gold we produce go on to back ETFs and futures contracts," said Tarek El Mdaka, Managing Director, Kaloti Jewellery International, DMCC, who also runs a refinery.

El Mdaka said over the last two years the demand of gold required to be converted into jewellery has declined, but the tremendous rise in demand from financial institutions has helped him maintain a steady turnover. "In fact, we are increasing our production by 50 per cent," he said. The refinery, which processes one tonne of gold daily today, will begin refining 1.5 tonnes daily by the year end.

The trend has not emerged without any reason. Just a month earlier, the global ETF industry had 2,189 ETFs with 4,354 listings, assets of $1,113.1 billon (Dh4,088bn) from 122 providers on 42 exchanges around the world. Gold funds tracked by EPFR, the US global fund data group, saw $5.7bn worth of investments flowing in the first three weeks of May. Of this, about $5bn went to ETFs.

According to Barclays Capital, gold Exchange Traded Products (ETP) flows hit a record of $26bn to May 25, from the beginning of 2009. About 2,000 tonnes of gold is currently backing ETPs.

Though figures of exactly how much investment has flowed into these ETFs from the UAE or other GCC countries is not available, it is considered to be high. And though the gold from Dubai that heads to vaults in London to back derivatives has to be re-refined, a good volume does flow from Dubai. According to a DMCC data, a government agency that facilitates the trade of gold and other precious metals, trade of gold through Dubai stood at $ 8.33bn in Q1 2010. Kaloti Jewellers is not the only one who plan to increase its production this year. Al Ghaith Gold DMCC and London Stock Exchange-listed Vedanta, which runs a refinery in the Fujairah Free Zone, are also expanding their production this year.

Al Ghaith Gold DMCC is enhancing the annual processing capacity of its foundry unit from 600 tonnes to 2,000 tonnes this year. Vedanta is enhancing its refining capacity from the present 20 tonnes to about 50 tonnes.

"We will be moving into a new location within the DMCC to enhance our production capacity. This place has a better infrastructure, especially with regards to power supply, and that will help us enhance our capacity," Mohamed Hassan Elzubeir, General Manager, Al Ghaith Gold DMCC earlier told Emirates Business.

Companies that understand the potential of Dubai as a refining hub, have been tapping the potential of the emirate for selling new machineries and technologies for gold refineries. "We are trying to sell new technologies and new machineries to Dubai-based gold refiners," said Syed M Hussain, who runs Precious Technologies in Dubai.

Follow Emirates 24|7 on Google News.