On Monday, Gold prices in Pakistan went to an unprecedented level, due to the mounting uncertainties in international financial markets. The price of 10 grams of gold went up to Rs356,033 and one tola reached a new high of Rs415, 278, according to the All Pakistan Sarafa Gems and Jewellers Association (APSGJA), with the gold price increasing by Rs4,629 and 5,400 respectively. This increment was directly related to the international gold market with the prices skyrocketing to a new record of all time by a margin of 54 per ounce in just one day.
Analysts attribute this world market rally to a number of overlapping causes, which include, but are not limited to, the fears of a potential United States government shutdown, increased geopolitical tensions, anticipations of further interest rate reductions by the US Federal Reserve and persistent political instability in nations like France and Japan. These trends have encouraged investors across the globe to look to gold to provide them with security and this strengthens its position as a safe haven asset during uncertain periods.
However, in Pakistan, this sudden rise in the price of gold has put a lull in the domestic jewellery demand. According to the APSGJA General Secretary Hamza Shikarpuri, there has been a serious reduction in the number of buyers in the market because gold is getting unaffordable among the middle classes. He observed that a large majority of the jewellery-seeking individuals have begun to opt to replace their old jewellery sets and bars rather than buying new sets. Meanwhile, investors in the real estate and stock trading sectors are resorting to gold as a good investment asset, and the largest investors, that is, those with 10 tonas, are buying the 10-tola biscuit, with other smaller investors buying bars of between one and five tola at the same time.
Surprisingly, even with the boom, local gold prices are under-priced against international parity. Mr. Shikarpuri estimated that rates in the country are Rs17 000 to 18,000 per tola below the global rates. He further said that at full convergence of local prices with international trends, the rate might very readily go beyond the Rs430,000 per tola. The low domestic demand and low levels of market activity have maintained the prices at a level that is a little lower than the world market.
Mr. Shikarpuri further emphasized the fact that the current crackdowns by the Federal Board of Revenue (FBR) and the Federal Investigation Agency (FIA) have only slowed down the activity in the market. He argued that the additional attention given by the FBR on tax collection has produced a fear among gold dealers, putting people off trade in the industry.
Analysts think that a change in the world political or economic situation towards positives can give a price correction to gold and in the meantime the volatility is likely to remain. As market insecurity prevails in the global market, gold has been one of the few investments that can provide the investor with the feeling of stability and security.
Read: Daily Gold Rates
