After real estate: Some predicted gold would be a safer bet – they were wrong

KARACHI: If people thought gold would be a safe-haven for investors after Pakistan cracked down on the real estate sector, they were wrong.

Gold prices have rallied in 2016, but that bullish run ended, for the time being, before the start of this month. Jobs data that showed sufficient numbers being added to the US payroll meant that the probability of an interest-rate hike increased, pushing gold prices lower as investors looked towards dollar as a safer bet.



The next US Federal Reserve meeting in December this year could be the time the country sees an increase in interest rate for the first time since December 2015, when it raised interest rates from near zero, meaning that gold would remain subdued or go even lower.

However, all that is at the end of the year. For now, Pakistani investors had banked on gold prices to rally since they foresaw a diversion of cash from the real estate sector. But over three months later, local prices are yet to ‘shine’.

The rally began earlier this year when gold’s international price was hovering around $1,050 per ounce, touching a peak of over $1,350 with the events of Brexit and delay in interest-rate hike pushing the yellow metal price higher.

However, since the last week of September, international gold prices have significantly receded. From over $1,340 per ounce, gold prices have come down to $1,256 - the biggest slump since June 2016.



Analysts say gold prices in Pakistan are expected to remain subdued in the short term because of better US jobs data and uncertainty in Pakistan’s real estate market.

“We believe gold prices will continue to remain depressed in the short term. However, they may go up in the longer term (three to four months),” All Sindh Saraf and Jewellers Association President Haroon Rashid Chand said.

Theoretically, the price of gold is inversely proportional to that of the dollar, as it tends to decline if the US currency gains strength. US policymakers said that the case for a rate hike has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. If it does raise rates, US dollar is likely to increase.

Link with local real estate

Though domestic gold prices are largely correlated with the international gold market, investors predicted that the sharp decline in property prices in the country in July and August would have caused a surge in local demand of gold, pushing its price higher. That hasn’t happened.

Analysts say investors are still banking on the real estate sector since the plunge in property prices that started in July and continued in August is now nearing an end. Their confidence stems from reports that the government may redefine property valuations of developing societies, providing much-needed impetus to investors.



“Some of us were expecting that the sudden drop in property prices in Pakistan may attract investors towards gold, but it did not happen. Right now, we see poor response both from investors as well as the general public because of which the market has remained slow,” said Chand.

Sharing his observation, he said most customers are exchanging old jewellery with new designs. These days, few want to buy new jewellery against cash and this is also contributing towards the slow growth of the domestic market, added Chand.

Published in The Express Tribune, October 12^th, 2016.

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