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SAUDI ARABIA - Economy

Andrew Naylor

Head of Middle East and Public Policy, World Gold Council

Bio

Prior to being appointed as Head of Middle East and Public Policy at the World Gold Council, Andrew Naylor was part of the central banks and public policy team and lead the council’s Islamic finance initiative. Before joining the World Gold Council, he worked for international consultancy firm Cicero Group advising financial institutions on foreign investment and trade policy in Asia and regulatory reform. He is Chairman of the Singapore Bullion Market Association’s public affairs committee and is a member of the supervisory board of the EU-ASEAN Business Council. He was a board member of the European Chamber of Commerce in Singapore between 2012 and 2019. He regularly gives broadcast media commentary on global and political economic developments on the BBC, Sky News, Channel NewsAsia and CNBC.

"Saudi Arabia has been less impacted by the high international gold price."

Andrew Naylor, Head of Middle East and Public Policy at the World Gold Council, talks to TBY about initiatives in Saudi Arabia, working with local banks, and sharia-compliant gold-backed products.

What initiatives is the World Gold Council undertaking to support the growth of the gold market in Saudi Arabia?
The World Gold Council continually strives to support the global gold market through comprehensive research, industry standards, and broad-based initiatives that indirectly benefit all gold markets, including Saudi Arabia. Our efforts in promoting responsible gold mining practices, enhancing market transparency, and fostering investor education are some of the ways we support the gold market. One of our key areas is making the case for gold to institutional and HNW investors. As a major wealth management centre with significant individual and institutional assets under management, the World Gold Council is prioritising its outreach to Saudi Arabia, making the case for strategic allocations to gold. Another area of focus is developing the retail gold market. In our latest Gold Demand Trends report consumer bar and coin demand was up 20% in Q2. Saudi Arabia was the only market in the region to see an increase in bar and coin demand. To strengthen the global market the World Gold Council has developed a code of conduct for the industry: Retail Gold Investment Principles. We will be rolling this out in the GCC, and as the largest consumer market in the Gulf, Saudi Arabia is a priority.

How is the World Gold Council working with local banks and financial institutions to promote gold-backed financial products in Saudi Arabia?
Bank-offered gold products are key to expanding access and formalising the gold market. As regulated, trusted institutions, banks can play a vital role in brining the benefits of gold to a wide range of consumers. Gold can also strengthen both the banking system and household finances – it is highly traded, can mitigate risk, and has historically outperformed many other major asset classes. As part of our regional plans, we are working with banks to encourage the development of gold-based products. Underpinning this is the AAOIFI Shari’ah Standard on Gold developed in collaboration with the World Gold Council. As home to the largest banking sector in the region, we will be working with Saudi-based banks to encourage the development of new gold-backed products to satisfy the strong consumer demand that we see.

How do you compare the demand for gold in Saudi Arabia with other major markets like China and India, especially considering recent global economic shifts?
In Q2 2024, gold jewellery demand in Saudi Arabia decreased by 11% year-on-year to 8.4 tonnes. This was less than the global decrease in jewellery demand of 19%, and less of a decrease than the largest gold jewellery markets of China and India. In China, demand fell by 35% year-on-year to 86 tonnes due to record high gold prices and a slowing economy. In India, demand dropped 17% year-on-year to 107 tonnes, potentially impacted by high prices and national elections. Saudi Arabia’s demand resilience, partly due to the VAT exemption on high-purity gold products and the economic strength of the Kingdom, stands out. This highlights the unique market dynamics in the Kingdom, where consumer confidence and supportive policies have maintained strong demand despite high prices.

What are the unique trends defining the gold market in KSA and how do they differ from other markets within the GCC?
Saudi Arabia has been less impacted by the high international gold price. Although jewellery demand has fallen, it hasn’t fallen as much as other markets. The real difference can be seen in the bar and coin market though. Saudi is the only country in the region to see an increase in bar and coin investment demand. It grew 20% in Q2 year on year, reflecting the strong consumer sentiment in the Kingdom. This is quite different from trends in other GCC markets. For example, the UAE experienced a 5% decline in demand due to high gold prices. Looking at the broader Middle East, regional demand for gold jewellery and bar and coin investment faced challenges, with a 12% decline in gold jewellery demand and a 13% year-on-year decrease in bar and coin investment to 28 tonnes in Q2. The Kingdom’s gold market displays a contrast with the broader GCC trend, where high prices generally led to decreased demand. The consumer confidence in Saudi Arabia remains strong, and local policies have effectively supported gold consumption, setting it apart from its regional counterparts.

How has the market for sharia-compliant gold-backed products evolved in Saudi Arabia and the broader region?
The evolution of sharia-compliant gold-backed products has been significant. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), with support from the World Gold Council, developed a Standard that provides clear guidelines on the parameters for trading and investing in gold within a Shari’ah-compliant framework. This standard has facilitated the growth of Shari’ah-compliant gold products in Saudi Arabia and the broader region by ensuring that these products meet the rigorous requirements of Islamic finance. This includes stipulations on immediate transfer of ownership, restrictions on derivative contracts, and the requirements for physical or constructive possession of gold. These measures have helped increase the confidence of Islamic investors in gold-backed financial products and helped foster gold’s growth in the market. Gold can help the Islamic banking system grow. Not only can it strengthen the banking system, but it can also increase its appeal.

What are your projections for the gold market in Saudi Arabia over the next few years, particularly in light of potential interest rate cuts and geopolitical instability?
Global trends such as geopolitical instability and potential interest rate cuts could positively influence gold demand. Historically, such factors drive investors toward gold as a safe-haven asset. Therefore, it is reasonable to anticipate that the gold market in Saudi Arabia may experience increased demand if these conditions prevail. Gold’s role as a hedge against uncertainty will likely enhance its appeal to both institutional and retail investors in the Kingdom. As Saudi grows as a centre of wealth management, it is only natural that the investment gold market will grow. Saudi Arabia is unique in the region in having a gold mining industry – there is a real opportunity for gold to play an important role in Saudi Arabia across the supply chain.

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