Introduction
In finance and investing, gold has attained a coveted position due to its reliable returns and safeguard in times of economic crisis. While it presents lucrative options, rising gold prices increase its “buying power,” thus leading to an increase in gold rates.
Analyzing the situation in Pakistan, influencing factors such as international market trends, domestic politico-economic conditions, and geopolitical trends have increased the gold prices . This has led to stock market volatility—ultimately affecting gold-related sectors such as the jewellery industry and manufacturing businesses that use gold as a raw material in their production. Therefore the fiscal and monetary policies must be adjusted to control inflation and stabilize gold prices.
This article explains the reason behind the rising gold prices in Pakistan and its possible impacts.
Factors Influencing Gold Prices
- Demand and Supply Ratio
Increased demand and limited supply of the yellow metal encourage price hikes in gold bullion, coins, and jewellery. In this regard, apart from investor spending, heavy government spending on gold can outstrip its supply mechanism. This is further clarified in a report by the World Gold Council which indicates that the world’s major banks purchased a net of 400 tons of gold in 2022.
- US Dollar
Gold has an inverse relationship with the US dollar therefore, if the strength of the US dollar wavers, gold rates will jump.
- Economic Turmoil
In current times, economic conditions such as hyperinflation, currency crashes, exchange rate fluctuations, recession, sovereign debt crisis, and trade wars (the China-US trade wars have disrupted global supply chains which have impacted consumer confidence, thus increasing reliability over gold) have led to an upsurge of gold prices due to burgeoning investor demand.
- Global Conflicts
Civil wars and prolonged conflicts such as the Russia-Ukraine War and the Israel-Palestine conflict have deterred investment in riskier assets. In this regard, investor caution is promulgated as they start diverting money from stocks and bonds to gold safe-havens.
- Natural Disasters and Pandemics
Catastrophic natural events such as earthquakes, tsunamis, and floods can disturb international and local market trends. Similarly, pandemics such as Covid-19 have led to widespread economic shutdowns, affecting gold prices. Therefore, throughout 2020, investor concerns about the pandemic drove gold prices through the roof, hitting an all-time high in August, when it broke US$2000 per ounce for the first time in New York trading.
- Global Energy Crisis
Oil shocks are a significant indicator of increasing gold prices, evident since the onset of the two aforementioned protracted wars.
The Worrying Situation in Pakistan
- Updated Data
The gold rate in Pakistan for 1 tola as of 24th May 2024 is as follows:
1. 24 karat = Rs. 240,400
2. 22 karat= Rs. 220, 365
3. 21 karat= Rs. 210, 350
4. 18 karat = Rs. 180, 300
The rate for different major cities of Pakistan is detailed below:
| City | Bidding | Asking |
| Karachi | 240,400 | 240,500 |
| Lahore | 240,450 | 240.550 |
| Islamabad | 240,500 | 240,600 |
| Quetta | 240,600 | 240,700 |
| Peshawar | 240,550 | 240,650 |
In addition to this, as discussed above, factors in Pakistan also coincide with the general influencing factors.
- Global Market Trends
The unstable global political and economic order has manifested into rising gold rates reverberating across Pakistan. This can be identified through fluctuations in interest rates and currency exchange rates. In Pakistan, investors are choosing gold over cash as it provides higher returns in times of turmoil, thus reflecting the sentiments of market participants.
- Rupee Depreciation
The purchasing power of the Pakistani Rupee has significantly downgraded. This is evident through burgeoning trade deficits, inconsistent fiscal policy regulations, limited investor confidence due to the political climate (allegations of faulty elections, social unrest, government policies, etc.), inflation, surmounting debt, and turbulent international market forces. The USD to PKR ratio stands at 1$= 278.24pkr, thus diverting investor confidence towards gold.
- Inflation
As always, a common denominator in gold hikes is inflation. The prices of goods and services increase (e.g. fuel and other essential commodities) while the incomes are stagnant, providing a perfect opportunity for investors and consumers alike to turn towards gold.
- Economic Situation
Pakistan’s economy is facing a default with the unpredictable stock market performance due to incompatibility with the US dollar rate, GDP growth, low interest rate, rising unemployment, etc. Moreover, despite an agreement reached with the IMF, the chokehold it has brought with stringent conditions has impacted gold prices in the long run.
- Import and Export Duties
High import duties significantly increase the price of gold. In this regard, as a shortcut to stabilize the economy, reduce inflation, and support domestic industry, Pakistan has frequently imposed additional tariffs on gold imports thus making it even more expensive.
- High Consumer Demand
During wedding seasons between November and February, the price of gold soars as its demand increases. Brides are seen adorning hefty tolas of gold on their special day.
- Future Speculations
Lastly, evaluating the economic conditions of the country, investors usually speculate that gold prices might skyrocket; this fear of missing out leads to heavy investment in gold products, which eventually causes a domino effect, resulting in a price surge.
Consequences of Gold Price Hike
The leap in gold prices has ramifications affecting individuals and various sectors in Pakistan.
| Investment Decisions | Stockholders have been increasingly dependent upon gold, thus leaving other exciting investment ventures aside owing to riskier outcomes. |
| Jewelry industry | The local jewellery industry in Pakistan is bearing the brunt due to rising costs. |
| Crumbling Businesses | Businesses like electronics, dentistry, medical instrument manufacturers, and the defense, aerospace, and automotive industries in Pakistan have been shocked. The inability to buy gold as a raw material has been detrimental to profits. |
| Smuggling Risks | In a similar vein—smuggling and black market activities are encouraged. |
| Property Crash | Property dealers and landowners have witnessed a significant hit due to spiraling gold prices. It has been noted that Pakistan’s commercial real estate business is officially dead and will not recover until after 2030, thanks to poor government policies and out-of-fashion treatment of the sector. |
Critical Analysis
Pakistan’s current economic portfolio has increased the attractiveness of investments in gold. In this regard, local political and social tensions triggered by public and private sectors have left traders with no choice but to shun other assets in favor of gold.
Aspiring gold investors are betting on gold to protect their wealth from a vortex of domestic and global economic recession. Gold has done well in times of turmoil. Predicting the future performance of gold indicates that as the world erupts into recession, its crippling impacts will be evident in Pakistan in the form of soaring prices. Looming international conflicts are also not a good sign as halting supply chains inadvertently affects exchange rates and currency volubility.
To stabilize gold prices the government must aid in controlling inflation, strengthening the rupee, adjusting interest rates, encouraging alternative investment measures i.e., gold bonds, and promoting flexible State Bank policies that will help stabilize gold prices in the long run.
Conclusion
The intricate interplay of local and international economic factors has provided a peak into the alluring nature of the original currency i.e. gold. This precious metal has been a fail-safe for investors and enthusiasts alike.
As Pakistan descends into further inflation, investors are looking for sustainable means to ensure their livelihood. Due to the rupee’s insufficiency and the overall declining value of bonds and stocks—gold investment serves as a sanctuary; offering potential profit and exponential growth in the longer term. While it does present a hedge against economic turmoil, it has also raised eyebrows with its impact on businesses, the jewellery industry, and investment decisions.
Policymakers must leverage greater foresight to navigate the volatile terrain of local and international economic markets so that the credibility of gold is harnessed constructively rather than being used as a weapon wielded only at times of emergency.
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