Low gold prices and seasonal Indian demand continued to buoy Dubai's gold market, but some traders feared turnover would decline in the new year following a liberalisation of India's bullion policy.
Demand for gold bullion and jewellery from Dubai, a main re-export centre, was booming with the start of the Indian wedding season in late November and the harvest of winter crops, traders said on Saturday.
"Demand for physical gold into India is absolutely very good," one wholesaler said. "The wedding season is on, which means buying anyway. And people will continue buying because of the low gold prices." International spot gold was last quoted on Saturday at $304.60-$305.10 an ounce, up from the London Friday fix of $303.90 an ounce. Dubai imported 55.107 tonnes of gold in October, raising to more than 500 tonnes the amount of bullion imported by the Gulf Arab emirate so far this year.
Some 80-85 percent of bullion imported into Dubai is re-exported to India. The remainder is distributed in Gulf Arab states, Pakistan and Iran. The World Gold Council predicts Indian consumption to reach 650-700 tonnes this year, up from 508 tonnes in 1996.
Cheaper gold prices -- near 12-year lows of around $300 an ounce -- translate directly into higher turnover because many clients tend to buy a flexible amount of gold on a fixed income.
"In India, people buy on a budget, not on weight. This means that for the fixed amount people are willing to spend they are buying more gold," a trader said.
But India's decision to free up gold imports may put a damper on Dubai's redistribution trade, traders said.
India in October allowed three state-run agencies and eight banks to import and sell gold freely. It said certified domestic importing agencies would also no longer require licences.
Some traders said the move could prompt Indian importers to side-step Dubai and secure supplies directly from Europe or producing countries.
"The move will affect Dubai's re-export market, maybe in about six months. Slowly, slowly all the business will come directly from Europe to India," one wholesaler said.
The WGC has said Dubai's trading volume would be unaffected by India's import relaxation. Some traders in Dubai were also convinced the Gulf emirate would retain its role.
"Dubai's physical proximity to India makes it more convenient (than Europe) as a source for gold," one said.
"From Bombay to Switzerland...it takes almost 24 hours. In the case of Dubai, you place the order in the afternoon or the evening, there are many flights throughout the day, so even at short notice one can send the merchandise to India," he added.
Dubai's benchmark ten tola (TT) bar -- 3.746 ounces of 24 carat gold -- was assessed on Sunday at 4,215-4,220 UAE dirhams ($1,149), up from 4,198-4,200 on November 16.
TT bars secured 5,255 dirhams in mid-November 1996.
