There has been a running joke, ‘Why did the Malayalee go the Gulf? Answer: To buy some gold.

 

After demonetisation set in India on November 8, 2016, the emirati countries and especially Dubai’s famous Gold Souk has been missing its favourite customers.

 

Did you know? Kerala alone consumes 20 per cent of India’s gold. Not tough to imagine given the southern state’s love for the yellow metal.

 

Be it a marriage or temple festivities or an offering to the Gods, gold plays an intrinsic role in the lives of the people here. Mostly chances were the gold would have come from Dubai.

 

But now after Prime Minister Narendra Modi deregularised currency denominations like ₹500 and ₹1000 the footfall at the Dubai gold markets have reduced drastically.

 

Indians going to Dubai would basically bring in rupees, exchange it for dirhams and then transfer it gold jewellery purchases. Not only that purchases were also made in gold bars and coins, but jewellery is more preferred. According to a report in Gulf News, in a good year, rupee-led transactions would have accounted for close to 15-20 per cent of sales at the Gold Souq, and more when gold prices take a dip but now the sales are speaking in the negative.

 

Post demonetisation physical gold is not being recommended as a wise investment option. Lack of availability of cash means lowering the demand for gold. Also the prices of gold are affected by international gold markets standards, the movement of the dollar or a hike in interest rates by the Federal Reserve.

 

Gold is seeing this hit because it was one of the sectors where unaccounted money and black money could safely be spent. Most of the payment would be made in cash and not even through plastic money.

 

In India, people had immediately turned to gold and jewellery traders to pass off their black money deposits. Many of the bullion traders issued bills for less than ₹2 lakh to purchasers so that they would not have to account for it by showing PAN. Gold was being bought at a huge premium in this time.

 

There also have been rumours that the government might ban imports of gold into the country until the end of the current fiscal year. It is being looked upon as a move to curb converting of black money. Moreso, gold is among the top five imported products into the country and already there exists a customs duty of 10% and excise imposition on jewellery of 1%. With all these curbs in place and lack of currency it is doubtful that the halls of Dubai Gold Souq will regain their Indian charm soon.