Commodity trading in Dubai has continued to grow in the past few years, providing a positive effect upon the wider UAE economy. Trading data released by the Dubai Gold and Commodities Exchange (DGCX) showed that the average daily volumes (ADV) rose again throughout February 2017, with the exchange’s product suite hitting record highs of 62,844 contracts in the month. Such a boost continues to push Dubai and the UAE forward as a financial powerhouse thanks to various factors aiding its economy to grow.
Interest from India
The Dubai markets had already established themselves as a major offshore place for forex traders looking to buy and sell Rupees, attracting major participation in the Indian currency in recent years. Dubai has built on this and is now making strong ground in the trading of India linked commodity futures. The DGCX has introduced India linked commodity futures including bullion and energy basket which are gaining swift ground.
These options are predicted to take a large share of the market away from Indian exchanges, boosting the DGCX and value of its commodity trading market. The ease of doing business in Dubai, lax tax and banking laws are the main reasons behind the interest from India. Many large Indian traders have even set up their own operations in Dubai for equities and commodities trading purposes, which could see others follow suit in the near future.
Positives of the DMCC
Around 15 years ago, the Dubai Multi Commodities Centre (DMCC) was set up as a UAE-based free zone to promote commodity trading. It managed to establish itself as the central market place in the wider Middle East for trading commodities, educating members on making the most of its open and flexible trade practices.
A surge in commodities trading helped the DMCC become the country’s largest free zone a few years back, and its continuing popularity has ensured it maintains this. It attracts many companies from outside of the UAE, especially those with an interest in trading gold, diamonds, tea, pearls and commodities futures contracts, which the DMCC specialises in. Plus, this resulted in a further surge in the amount of gold and gemstone trade, beneficial to the UAE economy.
Commodity Trading’s Effect on the Economy
All types of trading and the state of a country’s economy are closely linked. For example, should currency trading experience a boom then this is often reflected in the wider economy of a nation seeing positive movements as well. With commodity trading, an increased growth in Dubai and the UAE can provide a stimulus for growth of the economy in other areas.
For the UAE as well, initiatives such as the DMCC and attracting more interest from India and other overseas countries in trading commodities within the UAE is highly beneficial. It brings in a lot more money from outside of the country and into the UAE economy, through various areas of the commodities markets. This provides a great boost in other ways too, with companies setting up their operations in the country, buying property, spending in the local economies and more, for example.
Future Uncertainty
Dubai and the UAE may be experiencing continuous commodity trading growth, but there are fears that the global commodity market is set for an uncertain year. Elections in Europe, President Trump and other factors are believed to introduce plenty of volatility into many global markets, including the commodities one. This will affect the UAE market and could potentially slow down the positive growth it has experienced in recent years, affecting the country’s economy in the same way.
Time will tell if Dubai’s commodity trading slows down much or not, but at the moment it is in a strong place.
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