DUBAI (Reuters) - Gold jewellery sale volumes in Dubai fell around 40 percent in July on a year ago, as the economic downturn and summer heat deterred tourism, retailers said on Tuesday 4 August.

Tourists are a large part of the market for Dubai's tax-free gold, but recession has eaten into disposable incomes and hit the flow of visitors to the emirate, deepening the seasonal downturn in visitors as desert temperatures peak.

"There are no more tourists walking around the souk," said a salesman from ARY Jewellery based in Dubai's old gold souk.

"The situation for us is really bad, our sales are down nearly 40 percent. The heat and the fact that tourists have no money to travel are affecting the business and there are no indications of an improvement."

Almost 8 million tourists visited the emirate, which brands itself as the City of Gold, last year. There were no official figures on the number of visitors so far this year, but hotel revenues in the emirate fell 40 on the year in May and June, according to a report issued by hospitality consultancy STR Global.

"I don't see the situation improving much because the month of Ramadan is coming up soon and all people are thinking about is food, not gold," said Muhan Al Awadi, a sales manager at Al Ansari Jewellery in Dubai's Gold and Diamond Park. Sales at his shop fell by as much as 50 percent in July, he added.

Ramadan, a holy month for Muslims when they fast from sun rise to sunset, is expected to start on 21 August.

Abu Dhabi, capital of the UAE, is less dependent on tourists than Dubai and saw sales in July up 30 percent on the year as expatriates bought jewellery before leaving for summer breaks.

Gold has risen around 28.8 percent to about $955.55 an ounce on Tuesday 4 August from a low near $680 in October, as investors see the metal as a safe haven in a time of economic uncertainty.

But in the Middle East retail consumers make up more of the market than investors and rather than buying gold, cash-strapped consumers are selling it.

"At this time a lot of people in the Middle East are taking advantage of the high gold prices and selling their jewellery," said Rozanna Wozniak, Investment Research Manager at the World Gold Council told Reuters.

Dubai's Multi Commodity Centre (DMCC) has said it was encouraging local jewellers to look to China as a potential market for expansion.

By Amena Bakr