Demand for gold in the UAE fell by 21 per cent in the second quarter of 2006 at 25.9 tonnes, compared with 32.9 tonnes during the same period last year, as high prices and sagging local markets kept consumer splurges in check.

The London-based World Gold Council reported yesterday that net retail investments in the country declined by 38 per cent to reach 2.5 tonnes as erratic prices kept consumers guessing, while demand for jewellery also fell 19 per cent to 23.4 tonnes.

Other countries in the region did not fare any bet ter, with demand in Saudi Arabia declining 28 per cent in the second quarter, Egypt by 30 per cent and other Gulf countries also saw gold falling by 14 per cent.

A 23 per cent slide in the Tadawul All Share Index, the Kingdom's stock market benchmark, had "a serious impact on wealth and consumer spending", the council said. The Dubai Financial Market (DFM) has fallen by 60 per cent this year, and analysts said that investors in the UAE were cutting down on luxuries as they sought to cut their losses.

Retailers also blamed the cancellation of Dubai Shopping Festival (DSF) for the fall in demand. "During the 2005 Dubai Shopping Festival, Alukkas sold a tonne of gold, so of course the postponement this year of DSF affected the demand," said Tomy Joseph, the marketing manager of Alukkas, one of the biggest gold retailers in the country.

Joseph said that the Dubai Summer Surprises did not seem to have the same impact on sales. "The major periods for sales in the emirate is Dubai Shopping Festival and Ramadan and we hope that we will be able to make up during Ramadan and when the DSF is held at the end of the year [December 20 to February 2]," said Thomas.

Globally, gold demand fell 16 per cent in the second quarter as price swings discouraged purchases by jewellers, the biggest buyers of the precious metal, said WGC. "Price volatility has, as expected, had a detrimental effect on demand in tonnage terms," James Burton, the Chief Executive of the World Gold Council, said in a statement.

"However, it is reassuring to see people are spending more on gold. Sentiment towards gold has remained strong, and today's figures indicate continued investor interest and a record high in dollar terms for gold jewellery purchasing." Global demand dropped to 801.6 metric tonnes from 959.8 tonnes a year earlier, according to WGC. That was the third straight quarterly decline and the lowest level of demand since the third quarter of 2004.

Jewellery demand fell 24 per cent to 562.5 tonnes - a threeyear low. Buyers from India, the world's biggest users, cut purchases by 38 per cent and Indian jewellery usage slumped 43 per cent.

"If the price is moving around, people in India will be nervous and just will not want to buy," Jill Leyland, the economic adviser to the Gold Council, said in an interview in London yesterday.

"It does not matter how high or low the price. The important thing is that it is perceived to be stable." A pick-up in jewellery demand in the second half is "critical" to keeping gold prices higher for the whole year, Citigroup analyst John Hill said in an August 9 report.