Saudi, U.A.E. VAT Tax May Squeeze Gold Jewelry Demand Even More

(Bloomberg) -- Gold jewelry demand in Saudi Arabia and the United Arab Emirates is “likely to falter” after rising briefly in the next few weeks before the countries impose a value added tax in January, the World Gold Council said.

Weak oil prices and rising costs caused gold jewelry demand in Saudi Arabia to slump 9 percent in the third quarter from a year earlier while the U.A.E. showed a 10 percent decline, the producer-funded World Gold Council said Thursday in a report. Saudi Arabia’s demand was 9.8 metric tons while the U.A.E. consumed 7 tons, the council said. Overall Middle East gold jewelry demand dropped 4 percent to 40.9 tons, the lowest since at least 2014, the report showed.

The planned 5 percent VAT in Saudi Arabia and U.A.E. “may boost demand before the end of the year, although we believe the effect will be temporary,” the council said in the statement. “Demand is likely to falter once the new tax is in place.”

Iran’s gold jewelry demand climbed for a ninth consecutive quarter, increasing 8 percent to 11.4 tons, as interest rate controls prompted consumers to boost spending on gold items, the council said. Iran’s demand for bars and coins was 5.5 tons, compared with sales of 2.7 tons a year earlier, it said.

Turkey’s gold bar and coin demand jumped almost threefold to 15 tons from 5.3 tons a year earlier, according to the council, which cited a dip in the lira gold price and a government loan program.

Qatar was the only Middle East central bank cited in the report as adding gold to reserves in the third quarter, up by 3.1 tons.

To contact the reporter on this story: Claudia Carpenter in Dubai at ccarpenter2@bloomberg.net.

To contact the editors responsible for this story: Nayla Razzouk at nrazzouk2@bloomberg.net, Bruce Stanley, Claudia Carpenter

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