Gold is being sold at deep discounts in Dubai as the war in Iran has grounded flights and disrupted the ability of suppliers to move bullion from the major trading hub.
Many buyers have backed off from new orders, unwilling to pay the exceptionally high shipping and insurance costs and no guarantee of prompt delivery. As a result, rather than paying indefinitely for storage and funding, traders are offering up to $30 an ounce at a discount to the global benchmark in London, people with knowledge of the matter said on condition of anonymity discussing market information.
Several shipments remained stranded on Friday, the people said, although some bullion had been loaded onto Dubai-bound flights since the middle of the week.
The UAE, and particularly Dubai, is an important hub for the refining and export of bullion to buyers throughout Asia, as well as a conduit for shipments from Switzerland, the UK and several African countries. Its airspace has been partially closed due to a volley of Iranian missiles as the US-Israeli war with Tehran continues for the seventh day with no sign of resolution.
Gold is usually carried in the cargo holds of passenger planes. Even with flights from the UAE severely restricted, traders and logistics companies are reluctant to transport high-value cargo to airports in countries like Saudi Arabia and Oman due to the risks and complications, especially when crossing land borders.
“Many cargo shipments have been delayed or stranded, leading to a short-term reduction in physical bullion availability in India,” said Renisha Chainani, head of research at Augmont Enterprises Ltd., one of India’s largest gold dealers.
But buyers in India, one of the biggest gold consumers from Dubai, may wait as near-term demand remains relatively low and inventories have swelled due to large imports in January, said Chirag Sheth, lead advisor for South Asia at Metals Focus.
“At the moment, there is enough stock, but if it drags on for a few months, there will be a problem,” he said.
Spot gold has risen by almost a fifth so far this year, reaching above $5,000 an ounce, although trading has been volatile and the metal has come under pressure this week as the dollar strengthened.
There are also some signs that refiners are facing challenges sourcing dore – semi-refined gold bars are usually struck at the mine site. India’s largest precious metals refinery, MMTC-PAMP, gets about 10% of its dole from a mine in the Middle East, but supplies have been disrupted, Chief Executive Officer and Managing Director Samit Guha said. He said logistics costs for new contracts supplied from elsewhere had increased by 60% to 70% since the war began.
