Gold retail sale volumes in Dubai were stagnant in November and the first half of December as high prices, coupled with the emirate's debt problems, made consumers more cautious about spending, traders said on Thursday.

'Sales have remained at the same level of last year as the prices are very high and people in Dubai are now more afraid of losing their jobs, so spending has been cut down,' said Vincent George, sales manager at Chittilappilly Jewellers at the Dubai old gold souk.

Dubai's debt saga has shaken global investors since the emirate's November 25 announcement it wanted a standstill on the debt of state conglomerate Dubai World.

'Things have really slowed down over the past month as people don't think that this is the right time to buy gold since the price is so high,' said Muhand al Awadi, salesman at Al Ansari Jewellery.

'And since many people work in the banking and real esate sector now, there's an added fear of being laid off after this debt announcement,' he added.

Jewellery sales in Dubai, which promotes itself as the city of gold, have seen sharp declines in sales volumes since the end of 2008, as economic crisis shrank consumers' disposable incomes and limited the number of tourists visiting the emirate.

Sales during the first six months of this year dropped as much as 40 per cent from last year's levels, retailers told Reuters, adding that current sale volumes had improved but still remained at a low level.

Retailers and traders are hoping to see gold prices ease by the beginning of the year, which would boost demand.

'We expect that the price of gold will drop to around $1,000 an ounce as the dollar gains strength and this will really make all the difference in retail demand,' said a salesman from Paul & Sons Jewellers at the old gold souk.

Gold prices fell on Thursday, after the Federal Reserve noted some bright spots in the economy, which gave strength to the dollar. Spot gold was around $1,127.60 per ounce, down one per cent from New York's notional close of $1,137.80.

It hit a one-month low of $1,109.10 last week, and has now been trading about 8 per cent below a record high of $1,226.10 hit on December 3.

'With this positive note about an improvement in the US economy we expect that gold prices will start to level down by January, which will be good news for both retail and physical demand,' said Pradeep Unni, senior analyst and trader at Richcomm Global Services in Dubai.-Reuters