Why gold in Dubai is suddenly selling at discount
What's the story
The ongoing war between US-Israel and Iran has led to a major disruption in gold trade, with the precious metal being sold at steep discounts in Dubai. The conflict has grounded flights and made it difficult for suppliers to transport bullion out of this key trading hub. As a result, traders are offering discounts of up to $30 per ounce on the global benchmark price in London.
Market response
Traders offer discounts to encourage sales
The steep shipping and insurance costs, coupled with the uncertainty of timely delivery, have made many buyers hesitant to place new orders. Instead of incurring indefinite storage and financing costs, traders are offering discounts on gold prices. This is a strategy to encourage sales despite the ongoing conflict's impact on trade operations in Dubai, a major hub for refining and exporting bullion across Asia.
Trade disruptions
Dubai is a major hub for refining and exporting gold
The United Arab Emirates (UAE), especially Dubai, is a major hub for refining and exporting gold to Asian buyers. It also serves as a transit point for shipments from Switzerland, the UK, and various African nations. However, the ongoing conflict has resulted in partial closure of its airspace due to Iranian missile attacks. This has further complicated trade operations and contributed to delays in gold shipments from Dubai.
Logistics challenges
Traders are looking for alternative routes to transport gold
Gold is usually transported in the cargo holds of passenger planes. However, with flights from UAE heavily restricted, traders and logistics companies are hesitant to move high-value cargoes overland to airports in countries like Saudi Arabia and Oman. This is due to the risks and complications involved, especially when crossing land borders.
Impact on India
India has imported a large volume of gold in January
The delays or stranding of several cargo shipments have resulted in a short-term tightness in the availability of physical bullion in India. However, buyers here can afford to wait as near-term demand is relatively muted and inventories are high due to a large volume of imports in January. If this situation continues for a few months, it could lead to potential issues with gold supply and pricing.