Throughout human history, gold has retained its status as a precious commodity and an asset highly sought after by investors. It serves as a safeguard against inflation and economic instability. Deeply ingrained within Pakistani culture, gold holds immense significance, often adorning rituals like weddings and celebrations.

Recently, the resounding buzz surrounding gold prices in Pakistan has ignited debates among analysts and investors, prompting a comprehensive exploration of the underlying forces at play.

Numerous factors contribute to the escalating gold prices in Pakistan. Among these, the rising value of gold as a security investment stands out as a primary catalyst. Driven by economic uncertainties and high inflation rates, investors have displayed hesitance towards traditional securities such as stocks. The revered status of gold as a safe-haven asset has spurred a surge in demand, consequently exerting upward pressure on its prices.

From the then all-time high of Rs195,500 per tola in January this year, it has surged to Rs234,100 last week.

The multifaceted reasons behind the heightened gold rates in Pakistan encompass a range of factors. Notably, recent political disturbances hold significant sway. The arrest of former Prime Minister Imran Khan, coupled with ensuing protests and military interventions across provinces, has created an atmosphere of uncertainty.

Those shopping for jewellery are increasingly gravitating towards smaller items like nose pins and ear studs, reflecting a trend towards more affordable investments

Additionally, delays in obtaining crucial loan tranches from the International Monetary Fund have adversely impacted the currency market, fueling escalated demand for gold. Concurrently, the spectre of inflation plays a role in driving up gold prices.

The depreciation of the Pakistani rupee emerges as another formidable driver behind the upward trajectory of gold prices. The cost of imported goods surges as the rupee weakens against the US dollar. Given that gold is among these imported commodities, its price inevitably rises, adding to the overall investor enthusiasm.

The turmoil in gold prices has cast its shadow over the local jewellery industry. Production has dwindled due to challenges in sourcing raw materials at elevated gold prices. This, coupled with rising unemployment and financial distress, presents a formidable challenge for jewellers.

According to a jeweller, the market dynamic has shifted noticeably compared to the previous year. Only about 30 per cent of individuals approaching his shop are doing so intending to buy. In contrast, the majority of his customers opt to sell gold jewellery.

Regular customers who once purchased around 10 tolas of gold are now opting for two to three tolas ­instead — the jewellery now made has reduced weight with larger dimensions to appear more substanial on its wearers

Those purchasing gold increasingly gravitate towards smaller items like nose pins and ear studs, reflecting a trend towards more affordable investments. This shift contrasts with the tradition of buying larger quantities of gold. As a response to these market dynamics, regular customers who once purchased around 10 tolas of gold are now opting for two to three tolas.

Notably, these customers are requesting jewellery with reduced weight but larger dimensions so that it appears more substanial on its wearers. This reflects a larger trend wherein around 70pc of customers are engaging in selling gold, while the remaining 30pc are buyers. The buyers’ focus has shifted towards saving money, along with an increased interest in purchasing gold coins. Currently, a one-gram 24K gold coin is priced at approximately Rs18,600. This distinctive market trend indicates that customers are investing in one-gram or 21-karat gold pieces.

In conclusion, the mounting gold prices in Pakistan can be attributed to a constellation of factors, encompassing heightened demand for safe-haven assets, global economic turbulence, and the depreciation of the Pakistani rupee.

To ensure the nation’s economic trajectory remains on course, the Pakistani government must undertake proactive measures to stabilise the economy and address the fundamental factors underpinning the surge in gold prices.

Published in Dawn, The Business and Finance Weekly, August 28th, 2023