Gold Prices Plummet in Dubai Amid War-Related Shipping Disruptions

Dubai, a key gold trading hub, has seen gold prices offered at a steep discount due to the ongoing war in the Middle East. The conflict has grounded flights and hindered suppliers' ability to transport bullion out of the region, resulting in $30 an ounce discounts to the global benchmark in London.

The disruption has led many buyers to step back from new orders, citing exceptionally high shipping and insurance costs with no guarantee of prompt delivery. As a result, traders are offering discounts to avoid indefinitely funding storage costs. Despite some shipments being loaded onto flights in the middle of the week, many remain stranded.

The United Arab Emirates, particularly Dubai, is a crucial center for refining and exporting bullion to buyers across Asia, as well as a conduit for shipments from Switzerland, the UK, and several African countries. The region's airspace has been partially closed due to Iranian missile attacks as the US-Israeli war with Tehran extends for a seventh day.

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Gold is typically transported in the cargo holds of passenger aircraft. Even with flights from the UAE severely restricted, traders and logistics firms are reluctant to transport high-value cargoes overland to airports in countries such as Saudi Arabia and Oman, due to the risks and complications involved.

The disruptions have led to short-term tightness in the availability of physical bullion in India, one of the largest consumers of gold shipped from Dubai. However, buyers in India can afford to wait, with near-term demand relatively muted and inventories swollen by a large volume of imports in January.

Spot gold has gained nearly a fifth so far this year, reaching above $5,000 an ounce. Refiners are also encountering challenges in sourcing doré – semi-refined gold bars typically cast at the mine site. India's largest precious metals refinery, MMTC-PAMP, gets around 10% of its doré from a mine in the Middle East, but supplies have been disrupted.

Key Figures:

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• $30: Discount offered to the global benchmark in London
• $5,000: Spot gold price above
• 10%: Proportion of doré sourced from a mine in the Middle East
• 60% to 70%: Increase in logistics costs since the war began