The retail gold sector in Dubai is expected to recover faster than in other Gulf states as an increased number of tourists and slightly more stable gold prices in October boosted demand, traders said on Sunday.

Branded as the City of Gold, Dubai's jewellery sales are mainly derived from tourists visiting the emirate.

'There are signs that the economy is starting to recover because we are starting to see more tourists in the market and sales have been up about 10 per cent in October compared to last year,' said a sales manger at Kanz Jewels, one of the largest retailers at the Dubai Gold Souk.

The economic crisis and high gold prices have curbed consumer's appetite for the yellow metal causing demand to drop between  30-40 per cent over the past six months, traders told Reuters.

'After the Indian festival of Diwali we feel that demand has picked up again because the price of gold has gone down, and I think it is going to be stable,' said M P Changappa, sales manager at Chammaur Jewellers, which has branches in Dubai and Manama.

'As for our Bahrain branch I feel that the recovery will be slower since demand is mainly from the local market,' he added.

Spot gold prices reached $1,044 an ounce on Sunday from a record high of $1,072 in early October.

Discounted gold prices in the emirate also played a part in luring more buyers.

'There are a lot of retailers that sell jewellery at a discounted rate to the international gold price because they themselves bought the gold at a lower rate, so this means a slightly lower profit for them,' said Pradeep Unni, senior gold analyst at Richcomm Global Services.

'So with more discounts and less summer heat in Dubai tourists are bringing back demand to Dubai more than any other Gulf country,' he added.

Total demand for gold in the Middle East region fell by 18 per cent in the second quarter of this year to 72 tonnes, after being up 33 per cent in the previous quarter, according to a report released by the World Gold Council (WGC) in August.

The investment component of demand fell 31 per cent to 3.8 tonnes, while jewellery off-take was 17 per cent below second-quarter 2008 levels at 68 tonnes, it added.

In the Gulf region, retail gold sales fell 17 per cent during the second quarter of this year, compared with the same period in 2008.

In the UAE, retail gold volume was down 18 per cent in the second quarter compared with the same period last year.-Reuters