DUBAI, Aug 1: Dubai's gold sales dropped 30 per cent in the first half of the year as gold prices soared, the chairman of a gold and jewellery trade group in the Gulf emirate said.

Although customers shunned gold, sales of diamonds and precious stones surged 40 per cent, keeping jewellery sales growth in positive territory, Tawhid Abdullah of the Dubai Gold and Jewellery Group told Reuters.

Gold prices extended their rally in the first half of this year, rising above $700 an ounce in May to hit a 25-year high.

We are down about 30 per cent in gold (sales) this year.

I think the rise in gold prices was the main reason, Abdullah said, adding that domestic demand had been hurt by the rising cost of living in Dubai, commercial hub of the United Arab Emirates.

Abdullah said the value of gold sold by Dubai's merchants totalled about $570 million in the first six months of the year, with jewellery sales reaching $1.4 billion.

Together, the overall market grew about 3 per cent so far but we are used to 10 to 15 per cent growth every year, he said.

At the end of the day we are not in a downtrend market but we are spoiled by high growth. In 2005 the UAE's consumption of jewellery and investments in gold rose 21 per cent in value terms to $1.7 billion.

Gulf Arab visitors and Westerners have poured into the UAE to shop for discounted, tax-free luxury goods in Dubai's huge shopping malls and the labyrinthine Gold Souk.

A survey published earlier this month showed that the 6 million tourists who visit Dubai each year accounted for 52 per cent of retail jewellery sales.

Dubai has its own jewellery manufacturers but imports made up 58 per cent of all jewellery sold at retail outlets, while exports account for 47 per cent of total wholesale volume.

Abdullah said the Gulf Arab region was Dubai's biggest market, accounting for about 35 per cent of total gold and jewellery exports, with Africa second, followed by Europe, the United States and the Subcontinent.

He said gold sales had fallen by about 40 per cent in Europe because of high prices but demand had not changed significantly in Asia, where buying is driven largely by tradition and is less prone to price swings.

Abdullah said about 20 per cent of Dubai's total jewellery imports came from Italy, with India second and Malaysia third.

Imports from Italy are valued at about $700 million per year and last year the United Arab Emirates was second only to the United States as a market for the high-fashion Italian jewellery.

This year I think we could overtake them (the United States), he said.

I think we are behind by a very small per centage.—Reuters