Under streets and alleys covered by roofs to protect window shoppers from the intense desert sun, more than 300 stores peddle everything from ingots to Bedouin jewelry. The Dubai Gold Souk had become one of the largest such marketplaces, offering tax-free precious metal, as Persian Gulf oil wealth ballooned in the past few decades.

Now, with the plunge in crude throttling economies across the Middle East, gold buyers are harder to find. Demand for the metal is slowing in the region and Dubai has seen a drop-off in some visitors. Shopkeepers say sales are declining because tourists from Saudi Arabia and Russia have less cash to spend. Sellers offer discounts for gold that two years ago fetched a premium.

"The market is dead,” Jeffrey Rhodes, who has spent 27 years in Dubai’s gold industry and founded Rhodes Precious Metals Consultancy DMCC, said by telephone on April 21. "There’s no real demand here.”

Bedouin Nomads

The city’s history in gold jewelry dates back to the Bedouin nomads that roamed the Arabian desert, and it has long been a center for trading the metal. Dubai is the second biggest of the United Arab Emirates and is situated on the Arabian Peninsula near the shipping routes out of the Gulf. It’s a bridge between Africa, home to some of the world’s richest mines, and the jewelry markets of India, whose citizens buy more gold than anyone else on the planet.

Even with fewer shoppers in the market, which rose to prominence in the 1940s and is spaced across two buildings as high as six floors, Dubai is still a major trading hub. The weight of all the gold jewelry on display comes to about 25 metric tons, the same as five Indian elephants, according to an association representing the vendors.

Lower oil prices and political turmoil across the Middle East and Russia are hurting tourism to Dubai. With Brent crude futures down 43 percent from a peak in June, oil revenue is slumping for the world’s largest producers. Russia is heading toward a recession and its currency has plunged, while Saudi Arabia is on track for the slowest economic growth since 2009.

Less Spending

Shopping trips from the Middle East "are fewer and shorter, and they spend less,” Gerhard Schubert, founder of Schubert Commodities Consultancy DMCC and a member of the Dubai Multi Commodities Centre’s responsible sourcing committee, said by telephone from Dubai on April 28. "This will be even worse after Ramadan, during the Eid holiday when you normally have a million Saudis coming over. I’m sure the numbers will be down this year.”

Dijllah Jewellery FZCO, which sells jewelry and gold bars wholesale, has seen sales decline 40 percent this year, according to Managing Director Mohammed Hammoodi Hashim. Rimas 1 Jewellery, with customers in the Middle East and North Africa, put the decline at 15 percent for the first quarter, according to Walid Al Sudi, a partner at the firm and whose family has been in the gold business for at least five generations.

Middle Eastern demand for the metal fell 23 percent in 2014, the biggest drop in at least four years, data from Metals Focus, a London-based research firm, show. Russian visitors to Dubai fell 36 percent in February, according to a March report from The National newspaper that cited airport statistics.

Everyone Worried

"We are still surviving, but everyone is worried about the future,” Hashim said. He said a kilogram bar of gold in Dubai this month costs 20 cents an ounce below the London spot price, a sign of weak demand for the metal, compared with a premium of $1.50 in 2013. An ounce of gold fetched $1,203.73 in London on Thursday.

The decline in Dubai’s gold market is temporary, according to Mohammed Alashrafi, who runs five stores in the souk as an owner of Sama Al Khaleej Gold & Jewellery Trading LLC. He’s in the process of opening another store for customers from the Persian Gulf.

"Things are going to pick up again,” Alashrafi said. "The market in the region goes quiet from time to time, but it will never die.”

Other parts of the industry are expanding. Kaloti Precious Metals, a gold refiner, plans to open a plant in Dubai later this year that can process 1,400 tons of the metal annually.

The lack of interest in gold extends beyond the physical market. Trading in bullion futures on the city’s metals exchange is at the lowest in 19 months, with contracts changing hands an average of 1,136 times over the past 15 days.

For now, most shopkeepers in the gold souk are planning to ride out the slowdown, according to Chandu Siroya, vice chairman of the Dubai Gold and Jewellery Group. Sales at his store fell at least 10 percent in the first quarter, he said.

"We’re being hit by a combination of lower oil prices and lower tourism,” Siroya said by telephone from Dubai on April 28. "This year is going to be tough.”

(bloomberg.com)