Rising gold prices hit a new height in Pakistan

The rise in gold prices in Pakistan can be attributed to various factors such as global market trends, US dollar fluctuations, economic turmoil, global conflicts, natural disasters, and the global energy crisis. The depreciation of the Pakistani rupee, high inflation, and the unstable economic situation in Pakistan have further contributed to the surge in gold rates. Wardah Shahid concludes that investors are turning to gold as a hedge against economic uncertainties, leading to a shift in market sentiments toward the precious metal

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 gold prices. This has led to stock market volatility ultimately affecting gold-related sectors such as the jewelry 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

1. Demand and Supply Ratio

Increased demand and limited supply of the yellow metal encourage price hikes in gold bullion, coins, and jewelry. 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.

1. US Dollar

Gold has an inverse relationship with the US dollar therefore, if the strength of the US dollar wavers, gold rates will jump.

1. 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.

1. 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. 

1. 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.

1. 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

The gold rate in Pakistan for 1 tola as of 2024 is as follows:

1. 24 karat = Rs. 259,400
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:

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

Ruppe  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$= 279.24pkr, thus diverting investor confidence towards gold

Economic Situation

Pakistan’s economy is facing a default with 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.

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