Branded as the city of gold, Dubai has seen weak demand from the retail sector over the past year, as the high price of gold coupled with the economic crisis curbed consumer spending.

"There's a slight improvement this quarter, but there is still fear in people's minds that is holding them back from buying any luxury items, just walk around the souks and malls you will find them full, but not a lot of people are buying high value items," said Naheed Anees, director of jewelry at Dubai based ARY Jewelers, one of the largest retailers in the emirate.

Spot gold was bid at around $1,125.95 on Tuesday against $1,129.70 late in New York on Monday, when it rose as high as $1,133.20 an ounce, its firmest since early March.

"I think that during the first quarter of this year we have seen an improvement in Dubai retail sales, but this by all means is not a full recovery from what volumes were prior to the economic slowdown," said Pradeep Unni, senior analyst and trader at Richcomm Global Services in Dubai.

"We have to remember that the first quarter of 2009 was in the eye of the storm so a slight improvement from that is not saying a great deal," he added.

Some retailers believe that a drop in gold prices will be the main factor to encourage cash strapped consumers to start buying again.

"The price is still high right now and people are still not certain about splashing out on jewelry purchases so this uncertainty is what's keeping demand low," said a salesman from Shyam Jewelers based in Dubai's old gold souk.

Price volatility is also seen as a major factor that impacts retail purchases, said Jeffrey Rhodes, chief executive of INTL Commodities DMCC, an independent financial firm based in Dubai.

"I'm feeling very positive about this year because price volatility is not half of what it was last year, and so far I see that gold trade in Dubai in general has increased by around 30 percent in Q1 compared to Q1 last year," he said.

Demand in the United Arab Emirates fell 33 percent in full-year 2009, a little higher than the average fall of 31 percent recorded across Gulf Arab states, the World Gold Council said in February.