Middle East Conflict: Gold "Stranded"! Dubai Gold Wholesale Price Now Discounted. Where Will Gold Prices Go Amid Geopolitical Changes?

According to CCTV Finance, as one of the world’s major gold trading centers, the gold market in Dubai has seen a significant increase in trading volume, with some investors shifting funds into safe-haven assets like gold.

At the same time, due to flight cancellations and logistical disruptions, a large amount of gold remains in Dubai. High storage and financing costs have forced some traders to sell gold at discounts.

Reports indicate that some traders are selling gold at discounts of up to $30 per ounce below the London benchmark price.

In the past week, gold prices surged sharply at the onset of the Middle East conflict. On March 2, both spot gold and silver prices soared, with COMEX gold rising over 2%, reaching above $5,400 per ounce at its peak. Afterwards, prices fluctuated lower, remaining in a high range between $5,000 and $5,200 per ounce, without maintaining the previous gains.

How is the safe-haven attribute of gold priced in relation to geopolitical tensions?

Hu Jie, a former senior economist at the Federal Reserve and professor at Shanghai Jiao Tong University’s Antai College of Economics and Management, told First Financial that the narrative around gold is largely anchored in “sentiment.”

He explained that if conflicts can be resolved quickly and a new balance is reached, public concern over geopolitical tensions may ease. In such cases, the safe-haven narrative for gold might not only weaken but could also continue the previous easing trend, leading to a further decline in premiums.

Transport Bottlenecks and Gold Prices

Since the beginning of the year, gold prices have risen about 20%, reaching a historic high of over $5,595 per ounce in late January. Ongoing geopolitical and trade tensions, along with concerns over the Federal Reserve’s independence, have supported gold demand.

However, Hu Jie believes that before this round of tensions escalated, “the emotional resonance driven by geopolitical turmoil was nearing its end. On one hand, gold prices were already high; on the other, signs of easing had appeared, including relative calm in the Israeli-Palestinian conflict and potential de-escalation of the Russia-Ukraine conflict. When the macro narrative weakens, market sentiment tends to fatigue.”

Now, the renewed Middle East tensions add unexpected variables that could reverse this sentiment.

As previously mentioned, the situation in the Middle East has disrupted air traffic in and out of Dubai, causing a major impact on global gold and silver circulation. Traders believe this could intensify the already volatile precious metals markets this year.

Reports indicate that Dubai, as a global gold transportation hub, handled about 20% of the world’s gold flow last year. This includes gold refined in the UAE as well as Eurasian gold trade passing through Dubai.

Traders and analysts suggest that if gold and silver transportation remains disrupted long-term, it could push regional prices higher in Asia and increase recent market volatility.

There are also signs that refiners face challenges in procurement (usually semi-refined gold bars cast at mines). Samit Guha, CEO and Managing Director of India’s largest precious metals refiner MMTC-PAMP, said about 10% of their gold bars come from a Middle Eastern mine, but supply has been interrupted. Since the conflict erupted, logistics costs for new contracts from other regions have surged 60% to 70%.

John Reade, Senior Market Strategist at the World Gold Council, stated: “After flights in the Middle East were halted, concerns about gold supply arose. This is precisely why gold prices in India have been highly volatile.”

Data shows that in 2024, Dubai is the second-largest global gold export hub, with India as its largest destination. Rhona O’Connell, Market Analysis Director at StoneX, also believes India may be most affected by Dubai’s disruptions, as Dubai is a key transit point for precious metals headed to India.

“In the short term, people can manage, but if the disruptions last too long, everything becomes unpredictable,” O’Connell said.

Chirag Sheth, South Asia Chief Advisor at Metals Focus, believes that as one of Dubai’s largest gold consumers, India still has some buffer. Local demand has been relatively weak recently, and January’s large imports have swollen inventories. “But if transportation delays last for several months, problems will become evident.”

Large Quantities of Gold Still Blocked

Since the outbreak of this round of Middle East conflict, most commercial flights in the Gulf region have been suspended. On the 3rd, a few passenger flights departed from Dubai, but sources say these flights did not carry gold; perishable goods are prioritized. As of the 6th, a large amount of gold transportation remains blocked, although some gold was loaded onto departing flights midweek.

As previously mentioned, logistical bottlenecks have driven gold prices lower, with the latest Dubai eligible delivery standard gold spot price around $5,172 per ounce. Sources say many gold buyers have paused new orders due to the inability to ensure timely delivery and high transportation insurance costs. To avoid indefinite storage and financing costs, traders are offering discounts of $30 per ounce below the London benchmark.

However, a resident in Dubai told First Financial that jewelry prices in local gold shops remain unchanged, and the “discounting” behavior is not visible at the consumer level.

The UAE, as a hub for gold refining and export in Asia, also handles gold shipments from Switzerland, the UK, and several African countries. Gold is typically transported via passenger aircraft cargo holds. Even with severe restrictions on UAE flights, traders and logistics companies are reluctant to transfer high-value goods overland to airports in Saudi Arabia, Oman, and other countries due to risks and complex procedures, especially when crossing land borders.

“Currently, no gold can be transported by air,” said a gold trader, who hopes the disruptions won’t last long. Gold is usually shipped via passenger aircraft, with single shipments reaching 5 tons, worth about $830 million at current prices.

Some logistics carriers report they are busy handling gold shipments already delivered to Heathrow Airport in London, as airlines are unable to transport these goods, leading to a large backlog of “blocked exports”—goods that have cleared customs but must be withdrawn to reroute.

Looking ahead, Hu Jie told reporters that whether recent events will inject new momentum into the geopolitical narrative remains uncertain. “If the conflict persists long-term, the previous expectation of calm in conflict zones will be overturned; but conversely, if this conflict is resolved quickly, market perceptions of global turmoil could shift.”

Specifically, some analysts suggest that if the Strait of Hormuz remains blocked, combined with shipping disruptions and energy supply contractions, it could drive gold prices sharply higher due to safe-haven and inflation concerns. Otherwise, the recent volatility might have limited impact on overall inflation and macroeconomic conditions, and market safe-haven premiums could retreat.

“Thus, the key issue is not short-term fluctuations but the duration of the conflict,” Hu Jie explained. “The current focus is whether the Strait of Hormuz, a critical oil export route, will be effectively cut off.” Although reports of blockades have emerged, the actual impact on oil markets remains mainly psychological, with no direct price spikes caused by supply disruptions yet. However, if the strait becomes permanently closed, it will likely cause a phased shortage of oil supplies, pushing prices significantly higher.

He also emphasized that the core variables are threefold: first, how long the conflict lasts; second, whether it will directly impact oil supply; third, how long the supply shortage persists. If these factors combine to keep oil prices high over the long term, a chain of subsequent issues will follow. At that point, the Federal Reserve’s policy path will need to be reassessed, including plans for two rate cuts this year, which may need to be reviewed and adjusted based on inflation pressures.

(Source: First Financial)