Gold hits new all-time high

Experts anticipate gold price may rise to Rs200,000 per tola due to rupee fall

KARACHI:

In the past two weeks, gold has continued to steal the limelight in the market as prices hit a record high. The price of gold soared to a new all-time high of Rs174,900 per tola (11.66 gram), jumping by Rs2,200 on Monday.

Since December 1, 2022, the price has jumped by 8.5% (or Rs13,700) per tola. The explosive growth raises questions as to whether the surging price is sustainable or constitutes an unsustainable bubble.

The All-Pakistan Sarafa Gems and Jewellers Association (APSGJA) reported that the price of gold has been “over cost” by Rs4,000 per tola in Pakistan, as compared to prices in Dubai. This means that, at present, the Pakistani gold market is more expensive than the world market.

The shift from ‘under cost’ to ‘over cost’ also raises questions about the sustainability of the bullion price in Pakistan.

To recall, demand for gold hit a record high at 13 tonnes (worth around $800 million) between July-September 2022, rising by 34% quarter-on-quarter, in the three months after the US dollar, and other leading foreign currencies, went out of stock from the legal markets.

Fresh reports suggest that “gold has gone out of stocks as well (in Pakistan),” AA Gold Commodities Director, Adnan Agar stated while talking to the Express Tribune.

Earlier, the US dollar was the most preferred asset for investment in Pakistan. During high inflation days, investors parked their savings in the foreign currency to safeguard their funds from the devaluing rupee.

“The difference between gold’s official price and the price at which it is being sold is widening. The association has announced the official price at Rs174,900 per tola in the Sarafa market. It is, however, being sold at around Rs180,000 per tola,” he noted.

The Association’s (APSGJA) member, Abdullah Abdul Razak Chand said, “In recent times, about 90-95% demand for gold is coming from the investors’ community instead of genuine buyers.”

Experts anticipate that the price of gold may rise to Rs200,000 per tola due to the rupee devaluation against the US dollar under the current cycle.

“However, an inflow of $6-8 billion from multilateral and bilateral creditors will burst the pricing bubble in Pakistan,” explained Agar.

BISPL Commodities former analyst, Rizwan Ahmed Samra told The Express Tribune that, “Investors are unlikely to sell gold to book profit (difference between gold buying and selling prices) these days. They may book profit once gold hits the psychological barrier of Rs200,000 per tola.”

“In that situation, it remains crucial as to whether the government can manage to arrange US dollars to overcome the balance of payment crisis. The level of the country’s foreign exchange reserves will determine whether the price of gold will go up further from Rs200,000 or come down (drastically),” he commented.

“There are meagre chances (about 20%) that the government will come out of the balance of payment crisis over the next three to six-months. The price of gold may take a break from acceleration if the International Monetary Fund (IMF) announces the date for the ninth review of the domestic economy (which has been pending for quite a long time),” explained Agar.

The experts, however, stand divided on whether gold will maintain a dull trend at world markets or whether it will recover enough to reach another high.

“Gold may maintain a range of $1,780 to $1,820 per ounce in the short run,” predicted Agar.

“The future trend in gold prices is linked with the price of oil in the world market and global interest rates. If oil prices sustain a downward trend and interest rates come down in the next six months, then gold will become unattractive as an investment option or vice-versa,” experts agreed.

Meanwhile, the rupee remained unchanged at Rs224.94 against the US dollar in the interbank market on Monday.

Many experts have underscored that Finance Minister Ishaq Dar is controlling the currency market. They claim that this is the single biggest reason holding the IMF back from conducting its ninth review of the domestic economy under the $6.5 billion loan programme.

The price of the US dollar has shot to Rs240-250 in the black market.

The rupee has lost around 3.3% of its value in the past 10 weeks to date. It stood at around Rs218 in the first week of October in the interbank market, according to data from the central bank.

Published in The Express Tribune, December 20^th, 2022.

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