UAE. The volume of gold jewellery sales in Abu Dhabi dropped 20% in the first quarter of 2009 compared to the same period last year, as rising prices and the impact of the economic crisis on consumers crimped buying, the Abu Dhabi Gold and Jewellery Group said Tuesday.

Investors have used gold as a shelter from the impact of the deteriorating economy on other assets, pushing the price up and making jewellery expensive for consumers with shrinking disposable income.

Retailers in the emirate of Abu Dhabi sold around 4,500 kg of the precious metal in the first quarter, said Patni.

In terms of value, Abu Dhabi first quarter sales fell about 7% on the year to AED450 million (US$122.5 million).

Sales should pick up in the second quarter if the price falls, Patni said. 'I think retail gold has reached its peak at this point and we should be seeing it slide down again soon,' said Patni.

"Retail sales in Abu Dhabi dropped 70% in February," he said.

Gold sales in neighbouring Dubai, the heart of gold trade in the Middle East, have become very much dependent on tourist interest as gold's rise in the last weeks has slashed domestic demand. Local jewelers who have been waiting for a big chunk of tourists said that less and less tourists inflow to the city has badly affected the sale of gold.

Sales to tourists account for about 60% 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.

Retailers and industry groups say sales of gold and jewellery have dipped by as much as 45% in Dubai during the first quarter.

But Tawhid Abdullah, the CEO of Damas, the region’s largest jewellery retailer, said gold and jewellery sales during the first three months of this year had dipped by 12%-14% per cent, from last year’s comparative period.

The UAE has a long-established market for gold bullion and jewellery fuelled by strong demand from the Arab world and India.

According to a WGC report last month, gold investment in the Middle East jumped 38% in 2008 compared with 2007's fourth quarter. Saudi Arabia saw a massive 300% jump in investment demand, Egypt 67% and other Gulf countries registered a 2% increase.

While UAE gold jewellery sales increased by 17% in 2008 to exceed AED13.7 billion (US$3.73 billion) compared with AED11.4 billion in 2007, total gold demand in the Middle East was up 1% in the fourth quarter of 2008 compared with 2007, said the Gold Council report.

Nearly 90% of total consumer offtake in the region is in the form of jewellery. Weakness in this sector which was down 7% largely offset strong growth of 139% in the net retail investment.

Gold rose for the first time in four days on Tuesday as a drop to the lowest price in 10 weeks lured buyers. Bullion slipped 6.3% the past three days as a rally in equities and speculation of a global economic revival curbed demand for the metal as a haven.

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