With Pakistan’s economy in a tailspin, speculators jack up prices in informal gold market

Speculators are responsible for taking gold prices to exorbitant rates, said All Pakistan Gems and Jewellers Sarafa Association (APGJSA) as it relayed its reason for not issuing gold rates on Wednesday.

The APSJA notifies gold rates to the market every day, matching prices with international movement of the commodity as well as the exchange rate.

Read about the rates on Monday: Gold, silver prices hit all-time high

In December alone, the prices of gold have hit record highs in Pakistan, with official channel checks indicating nearly 20% appreciation in just three weeks alone. During this time, international gold prices have moved less than 1%.

On Wednesday, market talk suggested the gold’s price (for one tola of 24 karat) was quoted near Rs190,000, a massive increase of nearly 7% in one day. Gold business giant ARY group’s online portal sahulatwallet.com showed a price of Rs189,003 for a tola of gold.

This rate was quoted by APGJSA at Rs162,750 at the start of the month, and at Rs174,900 earlier on Monday.

APGJSA Chairman Haroon Chand said rates were not shared on Wednesday.

“This is because there is massive uncertainty in the market as speculators have been jacking up gold rates,” he told Business Recorder. “I have been following the market. There is demand, but not enough to take the rate to around Rs190,000.”

The development comes as Pakistan’s economy goes in a tailspin over falling foreign exchange reserves that are at less than 1.5 months of import cover. While policymakers are rushing to secure dollar inflows, talks with the International Monetary Fund (IMF) seemed to have hit a snag, and financing from ‘friendly countries’ has not yet materialised.

The country, already reeling from floods disaster, has also seen the emergence of an ‘illegal, black’ market for dollars in recent weeks, with stability in inter-bank market rates failing to convince traders of the rupee’s value at around 220-225. Market talk suggests the dollar is being traded at more than 250 in the black market.

The situation prompted Finance Minister Ishaq Dar to admit at a public gathering that the US dollar was being smuggled.

A similar situation now appears to be the case in the case of gold.

In times of economic distress, dollars are seen as a safe-haven asset. With dollars literally out of reach, gold has become the next-best option to hedge against uncertainty.

However, market officials, wishing not to be named, say while the demand has seen a surge, a massive price-increase in a short span of time is still “not justified”.

Director AA Gold Commodities Adnan Agar said gold merchants usually calculate prices of the commodity based on the prevailing exchange rate in the open market.

“However, you cannot find dollars at inter-bank or even formal open-market rates. It is selling at Rs260 in the black market. Seeing that, gold merchants are also reflecting that in their price.”

He added that at the Pakistan Mercantile Exchange (PMEX), a tola of gold has been trading at around Rs159,000, which reflects inter-bank and international gold rates.

However, he said that the gold was fast depleting at the exchange as well.