Gold is being offered at a deep discount in Dubai as the war in the Middle East restricts flights and limits the ability of suppliers to move precious metals out of the key trading hub.
Many buyers have backed away from new orders because they are unwilling to pay exceptionally high shipping and insurance costs without a guarantee of prompt delivery. As a result, rather than pay indefinitely for storage and financing, traders are offering discounts of up to $30 an ounce to the global benchmark in London, according to people with knowledge of the matter who did not want to be named to discuss market information.
Many shipments remained stranded on Friday, the people said, although some precious metals had been loaded onto flights from Dubai since the middle of this week.
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The United Arab Emirates, and Dubai in particular, is an important hub for the refining and export of precious metals to buyers across Asia, as well as a conduit for shipments from Switzerland, the United Kingdom and several African countries. Its airspace has been partially closed due to Iranian missile fire as the US-Israeli war with Tehran drags into a seventh day with no sign of resolution.
Gold is usually transported in the cargo hold of passenger planes. Although flights from the UAE are severely restricted, traders and logistics firms are reluctant to transport high-value cargo overland to airports in countries such as Saudi Arabia and Oman because of the risks and complications, especially when crossing land borders.
“Several cargo shipments were delayed or stuck, leading to short-term limited availability of physical precious metals in India,” said Renisha Chainani, head of research at Augmont Enterprises Ltd., one of India’s largest gold dealers.
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But buyers in India – one of the biggest consumers of gold shipped from Dubai – can afford to wait as near-term demand is relatively muted and inventories have been boosted by large imports in January, said Chirag Sheth, senior South Asia consultant at Metals Focus.
“We have enough supplies as of now,” he said, “but if it takes a few months, there will be a problem.”
Spot gold has gained nearly a fifth so far this year to top $5,000 an ounce, although trading has been choppy and the metal has come under pressure this week as the dollar strengthened.
There are also some signs that refineries are facing problems in obtaining doré – the semi-refined gold bars that are usually cast at the mine site. India’s largest precious metals refiner, MMTC-PAMP, gets about 10% of its dore from a mine in the Middle East, but supplies have been interrupted, managing director and CEO Samit Guha said. For new orders shipped from elsewhere, logistics costs have increased by 60% to 70% since the start of the war, he said.
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