KARACHI: Gold prices in Pakistan rose by Rs3,450 per tola on Tuesday hitting Rs114,700 per tola compared to its price of Rs111,250 per tola on Monday.
This was the fifth consecutive session where gold registered a hike in price.
The prices of 10 grams of 24 karat gold rose to Rs98,300 on Tuesday.
However, a gap between international and local prices of gold still remains. This is due to the slow rise in local gold prices earlier this year while international prices of gold registered high gains.
According to All Sindh Sarafa Jewelers Association President Haji Haroon Rasheed Chand the slow rise in gold prices earlier this year was due to the lack of purchasing power of the local population.
What’s making gold rally
Spot gold, being one of the strongest performing assets during the pandemic, is up by more than 20 per cent this year and has breached the level of $1,800. This level was last seen in 2011.
As uncertainty over the coronavirus grows, the international market remains bullish toward gold.
Gold scaled a nine-year high to reach $1823.29 per ounce by 0958 GMT after hitting its highest since September 2011. This is due to the weakening of the US dollar. Gold as a hedge against inflation and currency debasement heads up north as a result.
In the Western market, investors have been buying gold as a form of portfolio diversification and parking into safer havens.
However, in Asian markets, the trend is different. Based on cultural practices, gold is kept as a rainy day asset and a hedge against inflation.
However, due to joblessness as a result of the pandemic, some are selling gold to deal with expenses. As per a survey conducted by Dun & Bradstreet and Gallup Pakistan, approximately 18 per cent of the respondents had lost their job during the pandemic, whereas 59 per cent feared losing their job.
While there was earlier resistance in the price of gold in Pakistan, the price of gold is rising locally in line with international gains. As per All Sindh Sarafa Jewelers Association president, “the rally in local gold prices is primarily due to the rupee losing its value and the rise in international prices.”
The Pakistani rupee has declined by 8 per cent this year and a report released earlier this month by the Institute of International Finance (IIF) stated that the local currency was trading close to its fair value.
Moreover, the surge in gold prices can also be attributed to falling interest rates. Investors may find it more alluring to invest in the gold metal as opposed to treasuries keeping in mind the falling return.
In addition, gold, considered a hedge against inflation, may also attract investors due to the potential rise in inflation owing to the economic stimulus by the State Bank of Pakistan.
Bridging local and international price difference
“As per the recent prices, gold in Pakistan is approximately Rs5,000 cheaper than the international market. Prices of gold in the international market have gone up to approximately Rs120,000 per tola,” explains Rasheed Chand.
“Going forward there is a likelihood that this gap between the local and international prices can be bridged if the purchasing power improves or demand is restored fully. Gold may even rally up to Rs125,000 per tola keeping in line with expectations in the international market,” he said.
“However, there has been no significant surge in demand lately. If the lockdown is eased and the upcoming wedding season goes on in full swing, the gap between the local and international gold prices will be bridged earlier.”
