The Middle East situation worsens, and gold stranded in Dubai is being sold at a discount.

The conflict in the Middle East continues to escalate, and Dubai, a major global gold trading hub, is facing logistical difficulties. A large amount of physical gold is being held up locally due to flight disruptions, forcing traders to sell inventory at discounts.

According to informed sources, soaring transportation and insurance costs, along with delivery uncertainties, have led many buyers to pause new orders. To avoid ongoing storage and capital costs, Dubai traders are currently selling gold at discounts of up to $30 per ounce below the London benchmark price.

For Asian buyers, this logistical disruption has had a direct impact. Samit Guha, CEO of Indian precious metals refiner MMTC-PAMP, said that since the outbreak of hostilities, logistics costs have surged by 60% to 70%. However, due to large imports in January and relatively subdued recent demand, physical supply remains sufficient in the short term.

Dubai airspace closed, gold shipments halted

The UAE is one of the world’s most important centers for gold refining and re-export trade, also serving as a transit point for gold from Switzerland, the UK, and several African countries to Asian buyers. In 2024, the UAE imported a total of 1,392 tons of gold, worth over $100 billion.

However, intensive missile strikes by Iran have led to partial closure of UAE airspace. The conflict between the US, Israel, and Iran has lasted for the seventh day, with no signs of easing. Since gold is typically transported by air freight, the large-scale restrictions on flights have directly cut off this major transportation route.

Nevertheless, traders and logistics companies are reluctant to switch to land routes. Transporting high-value goods via land through Saudi Arabia or Oman to other airports involves cross-border customs and numerous risks, making such options limited in practicality.

India’s short-term stockpiles are ample, but risks remain

As one of Dubai’s largest gold buyers, India is feeling the pressure from this logistical disruption. Renisha Chainani, research head at Augmont Enterprises Ltd., said, “Multiple shipments have been delayed or stranded, leading to a short-term tightening of physical gold supplies in India.”

However, analysts believe India still has some buffer. Chirag Sheth, chief consultant for South Asia at Metals Focus, said that supported by large imports in January, current market inventories are sufficient, and recent demand has been relatively subdued, so buyers can wait. But he also warned: “While inventories are ample now, if this situation persists for several months, real problems could arise.”

Data shows that India’s gold premiums and discounts have shifted noticeably due to this transportation bottleneck, with gold discounts narrowing, reflecting market expectations of tighter physical supply.

Refiners under pressure, raw material supply and costs both affected

This conflict is also impacting upstream segments of the supply chain. India’s largest precious metals refiner, MMTC-PAMP, sources about 10% of its ore gold (semi-refined gold directly from mines) from a Middle Eastern mine, which is now disrupted.

Samit Guha stated that switching to other sources and signing new contracts has seen logistics costs jump by 60% to 70% since the outbreak of hostilities.

This means that even if refiners manage to source raw materials from alternative channels, cost pressures are significantly rising and could gradually pass down to downstream players.

Gold prices fluctuate at high levels, market closely watches developments

Since the beginning of the year, spot gold has risen nearly 20%, stabilizing above $5,000 per ounce. However, this week, the strengthening dollar has caused gold prices to become more volatile and retreat.

The market’s key focus now is whether the Middle East situation can be eased in the short term. If flight restrictions persist, Dubai’s logistical bottleneck could shift from a discount signal to actual supply shortages, potentially exerting a deeper impact on physical gold prices in Asia.

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