COVID-19 impact: Expats in UAE sell high-value gold to buy airline tickets

COVID-19 impact: Expats in UAE sell high-value gold to buy airline tickets

Dubai: For many expats in the UAE, gold is now serving a purpose more than just as an ornament. In these COVID-19 infected times, gold for these consumers is proving to be as good as cash.

They are making use of gold’s high value in recent days to sell and pocket much-needed cash, and thus make up for the sudden loss of jobs or sizeable salary cuts. With India allowing repatriation flights from May 7, there has been a noticeable pick up in such selling, especially among those expat Indians wanting to send their families back and having to shell out money for airline tickets. (The ticket prices are at Dh750.)

Gold in Dubai was retailing at Dh193.25 a gram for 22K early on Friday (May 8). “Right from the time jewellery stores re-opened in Dubai on April 26 (after the lifting of restrictions on commercial activity), people have been calling to find out whether we would pay cash,” said a member of the Dubai Gold & Jewellery Group. “They wanted to know whether we will insist on exchange schemes and not pay cash.

“After India confirmed repatriation flights would start from May 7, the last 48 hours saw some heavy gold-for-cash transactions taking place. It should pick up in the coming days.”

Market sources say most of these transactions are happening at the smaller jewellery outlets at the Deira Souq or Meena Bazaar.

Gold prices are helping
In recent weeks, gold has been in the range of $1,690-$1,724 an ounce, easily the highest levels it has reached in the last seven years. This, more than anything else, is what’s driving the selling off by consumers here.

“As a rule, we prefer to exchange jewellery or bars/coins for the gold brought in,” said Cyriac Varghese, General Manager at Sky. “But these are exceptional circumstances, and retailers understand why UAE residents would want to sell for cash. We will accommodate as many such requests as possible.”

Lose out on some percentage
In gold-for-cash deals, the consumer will lose out on what he or she paid as making charges if it’s jewellery that is getting sold. “They will also not get any VAT payment benefit by selling the gold jewellery back to us,” said Varghese. “In such transactions, the retailer does not have to pay for the VAT costs to the shopper. That’s because the seller is an individual and not registered to come under VAT obligations.”

But each gram counts for something
It does – someone who bought an ounce of gold (28.34 grams) five years ago and selling today would benefit to the tune of Dh1,930. If the purchase was made a year ago and the sale taking place now, the gain would still be a sizeable Dh1,584 (minus the VAT charges of 5 per cent. VAT came into effect from January 1, 2018.)

When their personal finances are stretched – and it is the case for a good number of UAE residents after the COVID-19 strike – any cash coming in would be quite handy. (Expat Indians could get a 10-12 per cent higher return if they sold the same gold in India – but most want to have the comfort of raising some cash immediately rather than wait for their return.)

But for UAE’s jewellery retailers, it will all add to the sense of uncertainty that has swept through their business in recent weeks. “There will be a drop in customers and we expect around one year to get back to the normal situation,” said Anil Dhanak, Managing Director at Kanz Jewels. “Based on my experience, I feel in the coming days there will be more sellers than buyers as far as the jewellery market is concerned.

“This is because majority of those who have invested in gold bars or coins will now start selling them. This is on account of the fact that everyone is facing a major hit as far as their income is concerned and would like to encash on the gold that they bought earlier – especially since gold prices are higher.

“This will result in a liquidity crunch for jewellers who will be generating lower revenue on account of reduced sales – as well as finding they have to dip into whatever funds are available to buy the bars and coins that people want to sell.”

Double whammy
As far as retailers are concerned, this is a double blow on their operations.

Because gold prices are at seven-year highs, there is limited buying activity. But those same price levels are getting cash-desperate “shoppers” to return to cash in on the high prices. Refusing their customer demand for cash is just not done in this business.

Adding to the troubles is that no one knows how long the COVID-19 created downturn will last. In many ways, it’s a triple blow on retailers’ operations.

“Since the stores opened, our shopper traffic is averaging less than 15 per cent compared to what’s normal,” said one retailer. “Of that 15 per cent, about 7-10 per cent are coming to sell their gold.

“At these volumes, it will be difficult to sustain even a day’s rental expenses plus what we need to pay as staff wages.”

Redundancies?
So far, jewellery retailers have not gone in for major layoffs, but cuts in salaries have already happened. “Because shops at malls and on the streets are operating on reduced hours, it effectively means we don’t need that many staff per showroom,” said a retailer. “Also, social distancing requires us not to serve more than 30 per cent of a shop’s capacity.

“For now, there’s no fear of that happening – traffic to the shops will not go beyond 10-15 per cent… unless gold prices crash.”

There aren’t many who think gold is going to go down any time soon. There may the odd dip, but $1,650 an ounce levels would most likely be the lower limit as long as COVID-19 fears loom large among investors.

All those UAE residents wanting to sell gold now, however, have no complaints about gold prices. Getting whatever they can before they make the exit on a repatriation flight is their only concern.