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Advantages of Investing in Gold and Precious Metals in the UAE

Table of Contents
Introduction

Gold and precious metals are highly valued in the UAE, with Dubai being a major hub for the global gold market. It’s often referred to as the “City of Gold.” The main advantage of investing in gold and precious metals in the UAE is reliability and stability. It presents an excellent opportunity to protect capital from inflation and currency risks, as well as to diversify investment portfolios.

Gold Market in the UAE

The export of gold from the UAE is experiencing significant growth, driven by rising gold prices and questionable sources of supply.

The UAE stands as one of the world’s leading exporters of gold, with growth indicators witnessing a remarkable surge in the first half of 2023. Exports surged by 40.7% to reach 218.3 billion dirhams, contributing 17.6% to the UAE’s foreign trade, up from 14.3% in the same period of 2022. Notably, 99% of these exports consist of unprocessed metal.

The increase in the price of gold has rendered the extraction of this precious metal more lucrative for mining companies. Consequently, these companies may seek to capitalize on higher prices by ramping up extraction and export volumes to enhance their profitability.

However, concerns persist regarding the quality and reliability of the sources from which the UAE, particularly Dubai, procures the majority of its gold. These concerns are highlighted in the Dubai’s Problematic Gold Trade report.

Dubai relies on imports and acquisitions of gold from over a hundred countries, predominantly from impoverished regions in Africa. This raises doubts about the quality of raw materials, supply chain integrity, and the legality of extraction practices, given the lack of stringent legislative regulations in these countries concerning precious metals and their extraction methods. Typically, mining activities in these regions rely on traditional technologies and inexpensive labor.

Issues Related to the Gold Market

The issues related to where gold comes from can cause big problems for everyone involved in the gold market.

One problem is when people mine for gold in areas where it’s not allowed, like places that need protecting because of the environment. This harms nature and can be really bad for the people working there, who often get paid very little.

Another issue is when gold comes from places with conflicts or wars. Sometimes, armed groups sell gold to fund their fighting. This makes the situation worse and breaks international rules against trading in conflict minerals.

When gold comes from these kinds of places, it makes people doubt if the gold they’re buying is okay. They worry about supporting bad things without realizing it. This lack of trust can mess up the whole gold market, making it hard for honest people to do business.

For investors, this is a big problem because it’s hard to tell if the gold they’re buying is from a good source or not. If too much bad gold gets into the market, it can make things worse for everyone. It also makes it easier for corrupt people to do bad things with money.

To deal with these issues, the UAE government has made strict rules to stop illegal gold mining and money laundering. They want to make sure that everyone in the gold business follows the right rules. This helps to keep the gold market safe and fair for everyone involved.

Dubai Gold and Commodities Exchange (DGCX)

The Dubai Gold and Commodities Exchange (DGCX) plays a crucial role in the gold trading landscape of the UAE. Situated in the Jumeirah Lakes Towers free economic zone, the DGCX is a specialized financial exchange that deals in various commodity products, including precious metals, energy resources, and currency. Here are some key aspects that make the DGCX a significant player in the market:

High Liquidity and Transparency: The DGCX ensures high liquidity and transparency, which are vital for investors and traders. This allows them to conduct transactions with confidence, knowing that prices are fair and assets are readily available.

Product Variety: One of the strengths of the DGCX is its diverse range of financial instruments. Investors have access to a wide array of options, enabling them to tailor their investment strategies according to their preferences and risk appetite.

Global Status: As one of the most renowned exchanges for trading gold and other commodities in the region, the DGCX enjoys global recognition. Its reputation attracts both local and international companies, further enhancing its significance in the market.

Specialization in Futures: The DGCX specializes in trading futures and options, making it particularly attractive to traders looking for instruments for speculation and risk management. This specialization adds depth and sophistication to the exchange’s offerings.

Geographical Advantage: Dubai’s strategic geographical location at the crossroads of East and West makes the DGCX a convenient hub for trading. Entrepreneurs and investors from different parts of the world can easily access the exchange, fostering global trade and investment.

Infrastructure and Regulation: Dubai boasts a well-developed financial infrastructure and operates under strict regulatory standards. This ensures the reliability and stability of the DGCX, providing a secure environment for market participants.

In terms of futures, the DGCX offers several main types, including regular daily futures, physically delivered futures, and India Gold Quanto Futures. These options cater to a diverse range of investment needs and preferences, further solidifying the exchange’s position as a leading financial center in the UAE.

Overall, the Dubai Gold and Commodities Exchange plays a pivotal role in the development of the regional and global commodity market. Its activities contribute significantly to the UAE’s position as a key participant in the global trade of precious metals and commodities, reinforcing the country’s status as a major player in the industry.

Gold refining market in the UAE

The gold refining market in the UAE plays a crucial role in ensuring that precious metals meet the highest standards of purity and quality. Refining, also known as purification, is a meticulous process aimed at cleaning and enhancing precious metals like gold. The primary objective of refining is to eliminate impurities, such as traces of silver, palladium, and platinum, from the raw metal. This results in the attainment of a high degree of purity, making the gold suitable for various applications, including jewelry, coins, and bars.

Gold refining process 

Melting: Raw metal is subjected to high temperatures, causing it to melt. During this phase, metals are separated based on density, and impurities rise to the surface, forming a layer of slag.

Slag Removal: The impurities present on the surface of the molten gold, known as slag, are carefully removed, leaving behind a cleaner metal composition.

Electrolysis: In some cases, the metal may undergo electrolysis to further enhance its purity. During this process, metals dissolve and separate, resulting in a more refined product.

Crystallization: The refined metal is cooled to form high-purity crystals, which are then processed to obtain desired shapes and sizes, ready for use in various applications.

Inspection and Certification: In Dubai, the refined metal undergoes rigorous inspection to ensure its purity and quality. Certificates confirming its characteristics are issued, providing assurance to buyers and investors.

It’s important to note that only accredited companies complying with the gold standard are permitted to engage in refining activities within the UAE. This adherence to strict standards serves as an additional guarantee of quality, reinforcing the UAE’s commitment to ensuring transparency and reliability in the precious metals industry.

The gold standard in the UAE refers to established norms and requirements for the purity and quality of metal used in precious metal metallurgy and trade. These standards dictate the minimum degree of purity that must be maintained in the production of ingots and jewelry.

Typically expressed as a percentage of gold purity in the alloy, such as 0.995, which signifies that the alloy contains 99.5% pure gold, with the remaining 0.5% comprising other metals and impurities.

This gold standard is of paramount importance in upholding quality and transparency in the precious metals industry. It provides buyers and investors with the confidence that they are acquiring high-purity precious metals that meet stringent global standards, further enhancing trust and credibility in the market.

Conclusion

If you are considering opening a business and investing in the UAE but don’t know where to start, turn to GenZone. We provide a full range of services for company formation in the United Arab Emirates. We assist at all stages, from registration to preparing the first deals.

Despite certain associated risks, investing in gold in the UAE remains one of the most attractive options for financial investments. This is due to the high standard of refining and quality control, ensuring the purity of precious metals, as well as the stability of the economy and political situation in the Emirates.

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