All that glitters now may very well be real gold since retail buyers are now flocking to jewellery shops in Karachi as price of the precious metal touched a five-year low.
While various factors pull the price of gold in the downward direction, commodities investors could feel the urge to wait a bit more before looking to buy.
For consumers, however, All Sindh Saraf and Jewellers Association President Haroon Rasheed Chand said the time to make the switch from artificial jewellery is now.
“It is time people switched from artificial jewellery to gold. Inflation is under control and gold prices are at the lowest point in recent years,” All Sindh Saraf and Jewellers Association President Haroon Rasheed Chand told The Express Tribune in an interview on Thursday.
Saying that heavy selling by China in the Hong Kong market has brought the price of precious metal under pressure in recent weeks, Chand noted the per-tola (11.6 grams) price of gold is expected to hover above Rs44,000 for the rest of 2015. Gold traded at Rs44,250 per tola on Thursday, according to Chand. A bearish trend is prevailing in the local gold market, as its price has declined over 25% in the last four years, data compiled by the All Sindh Saraf and Jewellers Association shows.
This is in line with the subdued trend in the international market where gold prices have now declined to just above $1,100 per ounce from the peak of $1,895 per ounce in September 2011, registering a decline of about 42% in almost four years.
Similarly, each of the two gold-based mutual funds being managed by Pakistani asset management companies has posted a negative return in the last 365 days. Atlas Gold Fund and UBL Gold Fund have posted absolute returns of -8.3% and -9.8%, respectively, over the one-year period, according to the Mutual Funds Association of Pakistan.
Speaking to The Express Tribune, Arif Habib Commodities CEO Ahsan Mehanti said the decrease in gold prices is an outcome of improving fundamentals of the US economy. Theoretically, the price of gold is inversely proportional to that of the dollar, as it tends to decline if the US currency gains strength.
Gold watchers believe the US Federal Reserve Bank will increase the target fed funds rate in September. An increase in the interest rate in the United States will attract funds that are currently invested in gold, which is a zero-yield asset that does not earn its owner any return that they could otherwise get by investing the same amount in stocks, bonds or currency.
Mehanti believes the gold prices will likely be subdued in the next six months unless China or India starts building inventories by buying huge quantities of precious metal.
As for retail buyers who invest in gold through the Pakistan Mercantile Exchange (PMEX), the national commodities exchange, Mehanti says the best investment level is yet to come. “I believe $980 per ounce is the best investment level in the current scenario,” said the CEO of Arif Habib Commodities, which claims to handle a majority of trades executed on the PMEX every day.
Out of the total traded value of Rs8.2 billion on the PMEX, the gold business constituted over 30% on Wednesday.
While there are many reasons for the less pronounced decline in local retail prices, it can be argued that the overall downward trajectory is a reflection of the subdued gold demand in international markets.
According to the latest quarterly data released by the World Gold Council (WGC), total global gold demand in the first quarter of 2015 clocked up at 1,079.3 tonnes, down 1% from a year ago and 3.1% less than the five-year average of 1,114 tonnes.
In dollar terms, the year-on-year decline in the global demand for gold remained 7% in January-March.
Published in The Express Tribune, July 24th, 2015.
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