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Is the UAE’s economic performance tied to the gold price?

At first glance, one might think that all states are in a hurry to acquire gold, no matter what; however, the reality is quite the opposite. Gold used to be a unique reserve asset for states and citizens because of its unique chemical characteristics that made it unable to react with other elements, including acids, making it a reliable store of value.

 

However, this situation changed in the 20th century. All states, their central banks, or treasuries now hold significant amounts of reserves in the form of a diversified portfolio of currencies, foreign government bonds, and precious metals.

 

The UAE is one of the most notable countries where gold plays an important role in the country’s economy. Even though we know it as an “oil-rich” country, gold appears to be a pivotal part there. In this article, we will talk about how gold affects the UAE’s economy.

 

General overview

It is a known fact that the UAE is one of the richest countries in the world and its capital Dubai is the heart of the state. Gold plays an integral part in bolstering the UAE economy and holds a noteworthy position.

 

At the same time trading culture in the country is very developed. People are engaged in Forex, gold, CFD trading UAE offers to its citizens and it is a very profitable activity for residents. We should also note that according to statistics over 4000 companies in the country are operating in the gold sector and total revenue equals AED 275 billion yearly.

 

Impact of gold on the UAE economy

We know that gold is one of the oldest forms of money and at the same time perhaps the most stable one in the whole world. During the recession and financial crisis gold still manages to retain its value and the price of gold is an indicator of a strong economy.

 

In the UAE, after oil and tourism gold is the primary source of generating revenue for the state. This fact clearly shows the impact on the national economy.

 

The UAE’s gold mining industry is small but it still manages to generate revenue for the country. Also, the refining sector helped notably to the development of the country. Due to its geographical location, the UAE manages to develop its refining sector in the state.

 

According to statics, the annual refining capacity is 130 tonnes, which is indeed a massive number.

 

What is the gold standard?

The gold standard is a system of monetary relations, the basic unit of settlement in which was the standardized amount of gold. The gold standard emerged at the beginning of the 19th century and ceased to exist in 1931.

 

Under such a system, currencies could freely circulate in gold, and the unhindered import and export of gold were also allowed. When settlements between countries using the gold standard, a fixed exchange rate was established – it was calculated based on the ratio of these currencies to a unit of mass of gold

 

The advantages of the gold standard system were that it provided stability in both domestic and foreign economic policies. The stability of exchange rates ensured the reliability of forecasts of the company’s financial flows and made it possible to plan costs and profits.

 

But at the same time, the discovery of new gold deposits and the increase in its production led to transnational inflation. Also, having a gold standard, it was impossible to pursue an independent monetary policy aimed at solving the country’s internal problems.

 

Conclusion

To sum up it is obvious that gold has a focal point in the growth and strengthening of the UAE economy. At the same time, the cultural importance of gold is also another factor that has contributed to the growth of the economy in the country.

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