Advantages of Investing in Gold and Precious Metals in the UAE

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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.

The export of gold from the UAE is growing due to gold prices and dubious sources of supply.

The UAE is one of the world's largest gold exporters. Growth indicators surged in the first half of 2023, increasing by 40.7% to 218.3 billion dirhams. The contribution of gold exports to the UAE's foreign trade reached 17.6%, compared to 14.3% for the same period in 2022. 99% of the exports consist of unprocessed metal.

The increase in the price of gold makes the extraction of this metal more profitable for mining companies. In response to higher prices, companies may increase extraction and export volumes to boost their profits.

However, there are contentious issues regarding the quality and reliability of the sources from which the UAE, particularly Dubai, obtains the majority of its gold. This information can be obtained from the Dubai’s Problematic Gold Trade report.

Dubai imports and receives gold from over a hundred countries, primarily from impoverished regions in Africa. This raises questions about the quality of the raw materials, supply chains, and the legality of extraction, as these countries lack strict legislative regulations on precious metals and their extraction methods. Typically, mining is conducted using traditional technologies relying on cheap labor.

This fact is associated with several potential issues:

  • Illegal mining in prohibited or environmentally vulnerable areas, which not only violates legislation but can also lead to environmental problems and human rights violations.
  • Conflict zones. In some cases, gold may be sourced from regions in conflict, known as "blood gold." The extraction and sale of such precious metals can finance armed conflicts and violate international agreements.
  • Loss of trust. Supplies from questionable sources can undermine trust in the precious metals market and raise doubts about its legality.

The main risk for investors is the legitimization of these questionable sources. Influx of illegal metals can create problems for the entire market, undermining its legitimacy and transparency. This could increase risks for all participants, including those dealing with clean and legal assets, and could provide fertile ground for the growth of corruption.

It should be noted that the UAE government is not ignoring this issue. A law has been enacted to combat illegal mining and money laundering through gold. According to this law, all procedures and guiding principles must be commensurate with the nature and scale of the business.

The Dubai Gold and Commodities Exchange as an important part of gold trading in the UAE

The Dubai Gold and Commodities Exchange (DGCX) is a financial exchange specializing in trading commodity products: precious metals, energy resources, and currency. It is one of the most recognizable and influential exchanges in the global commodity market, attracting numerous local and international companies.

Located in the Jumeirah Lakes Towers free economic zone, the area is home to financial institutions, exchanges, and companies providing financial services.

Advantages and features of the exchange that make it a significant part of the market:

  • High liquidity and transparency, which are important for investors and traders, allowing them to conduct transactions with confidence in prices and asset availability.
  • Product variety. The exchange offers a wide range of financial instruments, allowing investors to choose the most suitable investment strategies.
  • Global status. DGCX is one of the most well-known exchanges for trading gold and other commodities in the region.
  • Specialization in futures. The exchange specializes in trading futures and options, making it particularly attractive to traders seeking instruments for speculation and risk management.
  • Geographical location. Dubai's strategic geographical location at the crossroads of East and West makes it a convenient hub for trading with entrepreneurs and investors from different parts of the world.
  • Infrastructure and regulation. Dubai has a developed financial infrastructure and operates under strict regulatory standards, ensuring the reliability and stability of the exchange.

The exchange offers several main types of futures: regular daily futures, physically delivered futures, and India Gold Quanto Futures.

The Dubai Gold and Commodities Exchange is an important financial center in the UAE, contributing to the development of the regional and global commodity market. Its activities support the role of the United Arab Emirates as a key participant in the global trade of precious metals and commodities.

Gold Refining Market in the UAE

Refining, or purification, is the process of cleaning and improving precious metals. The aim of the procedure is to remove impurities, including traces of silver, palladium, and platinum. As a result of the process, a high degree of purity and quality of gold is achieved, making it suitable for use in jewelry, coins, and bars.

Quality refining involves several main stages:

  • Melting: Raw metal is melted at high temperatures. During melting, metals are separated by density, and impurities rise to the surface, forming slag.
  • Slag removal: Impurities are removed from the surface of the molten gold.
  • Electrolysis: For additional purification, the metal may undergo electrolysis, during which metals dissolve and separate.
  • Crystallization: The metal is cooled to form high-purity crystals, which are further processed to obtain desired shapes and sizes.
  • Inspection and certification: In Dubai, the obtained metal undergoes strict inspection for purity and quality, and certificates confirming its characteristics are issued.

Only an accredited company complying with the gold standard can engage in refining on the territory of the United Arab Emirates. This is an additional guarantee of quality that the UAE seeks to ensure.

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. They determine the minimum degree of purity that must be observed in the production of ingots and jewelry.

It is usually expressed as a percentage of gold purity in the alloy. For example, a purity standard of 0.995 means that the alloy contains 99.5% pure gold, and the remaining 0.5% may consist of other metals and impurities.

This standard is of great importance for ensuring quality and transparency in the precious metals industry. It allows buyers and investors to be confident that they are receiving high-purity precious metals that meet global standards.

The Level Consulting Assistance

If you are considering opening a business and investing in the UAE but don't know where to start, turn to The Level Consulting. 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.

Our goal is to provide businessmen with ideal conditions for starting their own business. We are available 24/7 and provide round-the-clock support on all issues.

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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