Gold rush as Saudi shoppers queue to beat VAT deadline

After months of lockdown, customers are back shopping for gold in the jewelers of Riyadh’s Diriyah district. (Fahad Alzahrani/AN)
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Updated 28 June 2020

Gold rush as Saudi shoppers queue to beat VAT deadline

  • Investors worldwide look to precious metal amid curfew easing and fears of second COVID-19 wave

RIYADH/LONDON: Saudi gold traders are reporting a spike in business as investors snap up the precious metal ahead of the introduction of the new 15 percent VAT rate next week.

At Riyadh’s recently reopened gold souq in Diriyah, jeweler Yaseen Ali said that visitor numbers were almost back to pre-pandemic levels.

“I wasn’t expecting this level of sales this week,” he said.

“I believe both lifting the curfew as well as the the increase of VAT to 15 percent (starting from  July 1) played a role in moving the market” Ali added.

The coronavirus pandemic has had a devastating impact on retailers worldwide and the jewelry sector has not been spared. Demand for gold jewelry plummeted 39 percent in the first quarter compared with a year earlier, according to the World Gold Council.

While demand for investment gold is strong as people turn to safe investments amid market volatility, the jewelry end of the business is more exposed to weaker consumer confidence as well as the absence of weddings and other celebrations associated with gold purchases.

Riyadh jeweler Ibrahim Awadh believes sales are still below pre-lockdown levels despite a marked improvement this week.

“Yes, we have witnessed excellent number of customers who visited the gold market this week, but the sales level is still below what we saw in the beginning of the year,” he said.

“With the lifting of the curfew, we expect to see more wedding celebrations in coming weeks, which will boost sales of gold and jewelry, although the big wedding gatherings that exceed 50 people are still banned,” he added.

Saudi Arabia is tripling its value added tax (VAT) from July 1 in an effort to increase government revenues in response to the coronavirus pandemic and weaker oil prices. The looming deadline has boosted purchases for some big ticket retail items, including jewelry, which will cost people more from Wednesday.

Gold investors worldwide have stepped up purchases in recent weeks as fears of a second wave of the coronavirus in some large economies encourages purchases of both physical gold and exchange-traded funds that are focused on the precious metal.

Gold bullion has risen more than 1 percent this week, with prices at a near eight-year high of more than $1,779 on Wednesday. It has returned 22 percent in dollar terms in the year to the end of March. 

“Gold has always been topical for investors in the Middle East,” said Alessio Cirillo, sales director at Invesco EMEA.

“Most investors buy gold as a hedge against inflation and high economic uncertainty, with some investors looking for asset appreciation. Globally, gold exchange- traded funds are recording record inflows as investors sought out liquid investment products to gain exposure to gold.”


Iranian oil in perfect storm of storage shortage, low demand, sanctions

Updated 21 min 9 sec ago

Iranian oil in perfect storm of storage shortage, low demand, sanctions

  • Coronavirus, US economic action sees inventories reach bursting point

LONDON: Iranian oil production has reached its lowest point in almost four decades, according to industry experts, with the country’s storage facilities fast approaching full capacity.

The news comes amid a dip in Iran’s oil exports due to a crash in global demand, and in a period when its refineries have been hampered as a result of the coronavirus outbreak.

With over 11,000 confirmed fatalities, Iran has suffered the worst coronavirus outbreak in the Middle East, affecting all areas of industry. 

This has created a perfect storm for the country’s vital oil sector, with what little selling ability it has further disrupted by sanctions imposed by the US in 2018 following Washington’s withdrawal from the Iran nuclear deal.

Iran’s total liquid production dropped from 3.1 million barrels per day (bpd) in March this year to 3 million bpd in June, according to FGE Energy, which predicts that the figure will drop by an additional 100,000 bpd in July.

Crude production was as low as 1.9 million bpd in June, the lowest since the beginning of the Iran-Iraq war in 1981.

Exports also fell, with estimates varying depending on source — 100,000 bpd in May according to market intelligence firm Kpler, and around 210,000 bpd according to FGE — well under 10 percent of the 2.5 million bpd Iran exported in April 2018.

Iran’s onshore crude stocks, meanwhile, hit 63 million barrels in June, having been just 15 million barrels in January, according to FGE.

Kpler said Iran averaged 66 million barrels in storage throughout June, meaning that around 85 percent of the country’s total onshore storage capacity was full.

“However, it will technically not be possible to fill tanks to 100 percent, given technical constraints at storage tanks and potential infrastructure bottlenecks,” Homayoun Falakshahi, a senior analyst at Kpler, told Reuters.

Offshore the story is much the same, with options running out fast. Iran has 54 crude oil tankers, according to valuations specialist VesselsValue, and is thought to be using around 30 ships, mainly supertankers with a maximum capacity of 2 million barrels of oil each, to store over 50 million barrels of crude and condensate.

“The exact number of Iranian vessels on floating storage is a bit of a black box as they have all turned off their AIS (tracking transponder) signals,” said a spokesman for shipping group NORDEN.

“Storage is expected to continue as we do not see these vessels being able to trade anytime soon.”