All the Gold in Dubai

"Gold is a bargain right now...We sold out yesterday..."

"SORRY SIR," the man behind the counter told Joel Bowman, editor of The Rude Awakening, at the weekend.

   "We don't have any more of those in stock right now."

   "Demand picking up again?" I asked.

   "We sold out yesterday," the Gold Dealer went on. "The Indians come to cash in their savings before they go home for the summer holidays. The guys who came in last week really got a good break. Gold is a bargain right now."

   I was attempting to do a little discount shopping over the weekend after my favorite metal suffered a lashing over the past month. Gold sold off all the way down to the mid $770s last week before clawing back slightly over the weekend. It sits about three bucks shy of the $800 as we write.

   But I wasn't the only bargain-hunter looking to Buy Gold here in Dubai. The conversation went more or less the same as this at the next store...and the next. Finally, at the fourth and last store of my visit, a man named Sahir came to the rescue.

   "We don't have any on hand," he started, "but if you don't mind waiting a few minutes, it can be arranged."

   Seeing the relief in my expression, Sahir gave instructions to two young men in the back of the store. One dashed out the front door and disappeared into the winding streets outside. The other brought a hot cup of Indian chai tea and pulled out a seat for me.

   While waiting for the delivery-man to return with my (relatively small) Gold Bar, I asked Sahir how he feels about gold's recent selloff.

   "I have mixed emotions," he muttered. "On the one hand, it's obviously very good for business. Our sales are way up. Then, on the other hand, it's almost painful to let it go at these prices."

   Indeed, business HAS been good this year for Dubai's gold traders. The value of gold traded in the first half of 2008 jumped 48% from the same period last year to 48 billion Dirhams (or about $13 billion), according to the Dubai Multi Commodities Center (DMCC).

   "Despite high volatility in prices, Gold traded through Dubai has continued to surge," Ian MacDonald, director for gold and precious metals at DMCC said last week.

   "Demand for gold has been resilient to global market conditions," he continued. "The sharp rise in prices earlier this year has been a prime driver in improving export volumes, and has boosted the role of gold as an inflation-hedging instrument."

   But where to from here?

   It is often said that the cure for high prices is high prices, but might the same not be said – all else being equal – for low prices too? Might a massive sell-off in this finite commodity also induce some excited, discount shopping from eager Dollar-hedgers?

   Maybe...maybe not. Perhaps the full faith of the world is suddenly back behind the previously moribund US Dollar. Perhaps a renewed faith in fiat currencies will trump the yellow metal, sending it back down to the doldrums of the early 2000s. Perhaps money rooted in faith really is all an empire needs to fund its lavish lifestyle at home and abroad.

   But preferring to err on the side of conviction, I'd rather not take empty promissory notes in place of and in exchange for real assets...especially notes backed up by broke governments with mounting debt. To me, paper money feels a little like hot potatoes – as soon as manage to get our hands on some, we try to pawn it off on the faithful as quickly as possible.

   That way, we can convert it into something that requires no faith whatsoever. Something like Gold.