DENVER, CO--Dubai, the city of gold, has continued to see massive upswings in jewelry sales over the past few months as tourism rapidly increases.

Dubai is the most populous of the seven city-states that form the federation of the United Arab Emirates (UAE). But it is distinct from its sister members in the UAE because oil revenues account for only a small fraction of the emirate's gross domestic product.

Dubai's oil sector contributed only 5.1% to GDP in 2006. Fact is, Dubai's oil reserves have been seriously drained over the past decade and are now expected to be exhausted within less than 20 years.

So in order to secure the future stability and growth of GDP, the government of Dubai has implemented a bold campaign to attract tourists in an effort to boost the flow of foreign dollars into the emirate.

And for the past ten years, it's been a true runaway success.

In fact, one source that I found while doing research for this article had this to say about tourism in Dubai:

Tourism now contributes about 18% of Dubai's direct gross domestic product and 29% of its indirect GDP--a hefty sum, to say the least.

In 2000, Dubai welcomed roughly 2.8 million visitors. Currently more than 6 million tourists are lured to the emirate each year from as far as Eastern Europe, Africa and the Indian subcontinent.

But that's just the beginning of the tourist upswing.

The number of tourists going to Dubai is forecast to be as high as 15 million by 2010.

Although the city-sate offers some sightseeing and cultural tourism, the main allure for visitors to Dubai is the emirate's now famed tax-free shopping. The growing reputation of this purchasing paradise has even earned Dubai the title "shopping capital of the Middle East."

A part of the reason that shopping in Dubai has become so renowned is the annual Dubai Shopping Festival, which essentially turns the entire emirate into one massive shopping mall. This gala of capitalism is a month-long shindig that's held each year around January.

The event embraces normal festival merrymaking, including music shows, art exhibitions and folk dances. There are daily car raffles and fireworks light Dubai's night sky. But the main attraction, of course, is the shopping.

The biggest shopping attraction in Dubai is the gold souk district. Souk is the Arabic word for market or a place where any kind of goods are brought or exchanged. And Dubai's most atmospheric jewelry shopping is found in the gold souk.

Get this . . .

Dubai now has over 600 jewelry shops. This is the densest concentration of jewelry shops in the world. In the gold souk itself there are over 275 jewelry shops crammed into an area of only half a square kilometer. There is so much jewelry in the city that at any given time there are over 25 tons of gold on display in shop windows. Because of all this, Dubai has been called the "city of gold."

In fact, in an effort to promote Dubai's gold jewelry market, the emirate constructed the world's longest gold chain during the Dubai Shopping Festival of 1999. The chain was made of 22 k gold and measured 4.2 kilometers. 9,600 people bought the chain in necklace and bracelet size pieces.

Because gold is such serious business in this part of the world, we can use the Dubai jewelry market to help us gain perspective on overall gold demand.

Dubai Gold Sales Continue to Soar

Gold sales in Dubai in August increased in value by 26% over last year, as demand from tourists rose and the economy improved.

In July, gold sales increased by 33% in total value compared to the same month last year.

And during the first two quarters of 2007, the gold industry recorded gold sales gains of 32% and 34% over 1Q and 2Q 2006.

Industry experts suggest that we could see another 40% increase in September.

Jewelry in Dubai is valued mainly by the current price of gold bullion, unlike in the West, where it is based more on the artistry of the piece. So it's very encouraging for us gold bugs that the regional appetite for gold remains strong despite relatively high prices.

And the growing demand is not limited to Dubai. Gold sales in the UAE rose 22% in the second quarter of 2007 and demand in the overall Middle East was up by 20% to 97.5 tons over the second quarter last year.

Also during the second quarter of 2007, jewelry accounted for 73.2% of all gold demand, a 29% increase over 2Q 2006.

Gold prices have now traded above $700 an ounce for the past seven trading sessions. And continued strength in gold jewelry markets like Dubai despite higher prices adds bullish sentiment to the overall gold market.

Long gold,

Greg McCoach