Dubai’s renowned Gold Souk, often called the “City of Gold,” has long been a hub for buying 22-karat gold jewellery, especially for weddings, religious celebrations, and as family investments. However, the recent surge in gold prices, surpassing $3,400 per ounce, is causing a shift in consumer behavior. While gold remains a popular investment, many buyers are turning to lighter gold jewellery and diamonds instead.
Gold’s record prices are partly driven by U.S. tariffs and increasing demand for gold as a safe-haven investment. But these rising costs are also affecting the jewellery market, according to Andrew Naylor, the head of Middle East and Public Policy at the World Gold Council (WGC).
“In markets like Dubai, high gold prices have a dual effect,” said Naylor. “There’s more interest in gold as a secure investment, but at the same time, these prices are discouraging jewellery purchases.”
Retailers in Dubai’s Gold Souk have noticed this trend, with many shoppers seeking alternatives due to the high prices. “There are fewer potential customers nowadays because of the gold prices,” said Fahad Khan, a sales representative at Damas Jewellery. “It’s getting difficult to afford gold, so many people are opting for diamonds,” added Lalita Dave, 52, as she shopped in the souk.
Shift to Diamonds and Lab-Grown Alternatives
Dubai has attracted gold buyers for over 80 years, particularly from Iran and India, both of which have a long-standing tradition of investing in and wearing 22-karat gold. However, as gold prices increased by 27% last year, demand for gold jewellery in the UAE dropped by around 13%, a sharper decline than the 11% drop seen globally, according to the WGC.
The jewellery market may face further challenges in 2025 if gold prices continue to fluctuate or remain high. The WGC’s February gold demand trends report highlighted that price volatility, rather than steady high prices, is shaping consumer decisions, particularly in India, where changes in purchasing behavior often influence Gulf markets, including the UAE.
Goldman Sachs has recently raised its forecast for gold prices, predicting they could reach $3,700 per ounce by the end of 2025 and potentially climb as high as $4,500. “Higher gold prices tend to reduce demand for jewellery, which is a classic example of how the best cure for high prices is even higher prices,” said Russ Mould, investment director at AJ Bell.
One notable trend is the rise of lab-grown diamonds. As the price of gold climbs, more consumers are opting for these diamonds as a more affordable alternative. In 2024, India exported $171 million worth of lab-grown diamonds to the UAE, a nearly 57% increase from $109 million in 2022, according to the Gem and Jewellery Export Promotion Council. India’s overall exports of cut and polished diamonds to the UAE also saw a 3.7% increase from April to November 2024.
The UAE is now the third-largest global importer of diamonds, with major trade partners including India, South Africa, and Belgium. Though the UAE accounted for only 1.5% of the global diamond jewellery market by revenue in 2023, the market is expected to grow at an annual rate of 5.9%, reaching nearly $2 billion by 2030, according to Grand View Research. This growth rate is faster than the global average of 4.5%, making the UAE the fastest-growing market in the Middle East and Africa.
Impact of Trade Tensions on the Diamond Industry
Recent trade tensions with the U.S. have led to discussions among Indian diamond exporters about finding new markets and production hubs. Two executives from major Indian diamond firms told Reuters that if these tensions persist, some companies may shift production to the UAE.
Shamlal Ahamed, managing director of international operations at Malabar Gold & Diamonds, noted that the rise in lab-grown diamond jewellery sales in the UAE appears to be driven more by design preferences than price. Despite the changes, Ahamed remains optimistic about the future of gold jewellery.
“While price-sensitive customers may wait for prices to drop, we’ve found that when prices do fall, they often quickly rise again, and buyers adapt to the new price levels,” he said.
As gold prices continue their record climb, Dubai’s Gold Souk faces a changing landscape, with jewellery buyers seeking alternatives, but the market’s resilience remains strong, especially in the diamond sector.
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