Smaller Abu Dhabi gold retailers could be forced out of business because high prices and the economic downturn have driven consumers out of the market, an industry executive said on Wednesday.

Tushar Patni, managing director of Ajanta Jewellery added that if the price of the precious metal stays over 100 dirhams ($27.4) per gram then it could force closure of some retail outlets.

Retail gold sales dropped by about 25 percent in March in Abu Dhabi compared with the same period last year, said Patni, who manages the largest retailer of 22 carat gold in the capital of the United Arab Emirates.

Currently the price of gold is at 110 dirhams and I expect that it will stay at this level which spells bad news for many of the smaller retailers here who will be forced out of the market, he told Reuters by telephone.

The economic crisis has really hit consumers' spending power and it's starting to shake up gold demand.

Gold prices have benefited from the global economic downturn as investors, worried about the banking system, switched their money into tangible assets that seem likely to hold their value.

But retailers like Ajanta have suffered from a double blow of consumers tightening their belts and higher costs for their raw material. Spot gold traded at $919.85 per ounce earlier on Wednesday, up from a low of $680.80 in October.

Overall sentiment among gold retailers is poor, Patni said.

Sales figures for the first quarter Abu Dhabi will be released next week by the Gulf emirate's gold and jewellery group. The industry group saw sales down over 70 percent on the year in February.

The government of Abu Dhabi plans to boost spending on marketing for gold retailers and will make changes to the format of the industry group to do this, he added. The informal group represents some 110 retailers.

TOURISM DOWNTURN

Tax-free jewellery in the UAE's gold souks and shopping malls is a major draw for many Gulf Arab, Asian and Western visitors, but the recession has hit that source of income.

Sales to tourists account for about 60 percent of retail gold sales in the UAE, and these have fallen with a sharp decline in the number of visitors to Dubai, said Pradeep Unni, senior research analyst at Dubai-based Rihcomm Global Services DMCC. Sales could pick up in the summer as expatriates buy gifts before heading home, he said.

In Dubai, I expect that sale volumes will start to pick up a little bit by the last week of April as the summer holidays come up and people from India love bringing back jewellery to their family, Unni added.

Prior to the global economic crisis only 20 percent of the total gold volume in the Middle East was traded on exchanges but that could increase as retail demand falls, said Anan Fakhreddin managing director, Middle East and Turkey for the World Gold Council.

On a macro level what's happening right now is going to balance out retail and investor volumes, he said. (Editing by Sam Cage, Editing by Peter Blackburn)

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