The Dazzling Gold Souk in Dubai

By: Saud Masud

Gold throughout history has always played an influential role in world markets and is relevant these days because in the last few years gold prices have risen 200%, a staggering increase, compared to the global stock market up only 5% since 2005. It has definitely always been a popular precious metal to invest in, but it is also very volatile in terms of its price. These days gold trades are near an all-time high of around $1,400 per ounce. As it continues to command strong interest in the world market, Dubai’s Gold Souk came to mind.

Dubai, a long-standing trading hub for the Middle East, started to gain popularity in recent times with establishing its free trade policies in the 1940s. This allowed various entrepreneurs from around the world to set up shops in what is commonly known as the Gold Souk (Arabic for market). Today, the gold is imported from nearly 100 countries and exported to 65 countries around the globe.

Dubai, the City of Gold, as it is sometimes referred to, is home to more than 500 gold stores with almost 300 in the Gold Souk, displaying 25 tons of gold. It generates billions of dollars in annual sales. Dubai is one of the largest importers of gold worldwide with India and Switzerland as key trading partners and Dubai offering some of the broadest variety of this yellow metal from Arabic to Indian to Italian styles.

What is helpful is that there is also zero to minimal taxes and tariffs, which makes prices on jewelry to bullions (gold bars) very attractive though one must never lose sight of the bargaining upside. Given the number of gold vendors and the available variety, for smart and patient shoppers negotiated savings may be worthwhile. Remember that the price of a jewelry piece, for example is made up of labor costs and actual gold market value, so while there may be little wiggle room for haggling on the latter, one can often get the dealers to compromise on markups associated with labor costs. Also be aware that carrying a credit card may not be the wisest move because firstly you will likely incur 2.5%-5% transaction costs and secondly because an all-cash deal signals to the vendor that you are a serious buyer. Vendors tend to be more flexible and accommodative when they see a cash buyer in their store willing to buy on the spot. Though walking around with wads of cash may make some uncomfortable, Dubai is generally a safe city with low crime and theft.

Furthermore incidences of vendors selling fake gold are very rare since government officials regularly check the markings. Though in August 2010 nearly 5 tons of imported gold worth $200 million was found to be artificial on arrival. Dubai Customs discovered that unfortunately some traders were looking to import gold from somewhat dubious foreign sellers and were taken for a ride. Obviously, this shipment did not make the market obviously.

Dubai’s gold has a reputation for being the finest. That maybe true, given that the vast majority of the gold available in Dubai is 21 karat. The Asian demographic especially Indians tends to have strong appetite for family jewelry that gets passed on from generation to generation and tend to purchase at the high end of the gold purity range, i.e. 21, 22 and 24 karat.

The Gold Souk with its old-fashioned architecture in place has been around for years and continues to bring in tourism and drive business beyond just jewelry purchases. Though after 20 minutes of walking past wall-to-wall gold chains, necklaces, watches, etc., it’s a walk worth making especially if you can still walk away with some green left in your pocket.

Saud Masud is the CEO of SM Advisory Group, LLC. a consultancy firm focused on Middle East, North Africa and South Asia region (MENASA). Previously, Mr. Masud was the Head of Investment Research at UBS for Middle East and North Africa based in Dubai. In addition to overseeing the research platform he was also a Sr. Analyst covering Real Estate sector for the Middle East region. Before moving to Dubai Mr. Masud was a Sr. Analyst for 5 years covering the tech sector for UBS in New York. Prior to Wall Street Mr. Masud ran an Internet start-up, Synapse Worldwide and engaged in management roles at Lucent Technologies based in New Jersey. Mr. Masud holds both a Bachelor of Science in Electrical Engineering and MBA in finance from Virgina Tech. Mr. Masud has often appeared as guest on TV and radio including CNBC, Bloomberg, CNN, BBC, Voice of America, etc. and has been frequently quoted in business news outlets like Wall Street Journal, Financial Times, TIME, Reuters, etc.