Gold at new highs: a call to deepen Pakistan’s capital markets

Gold has shattered previous records globally and in Pakistan, triggering waves of alarm across households, financial markets and policy circles alike. Starting from PKR 283,015 (per tola) in January 2025, gold prices rose almost every month reaching PKR 414,411 in October 2025 - a cumulative increase of around 46.43 percent in gold prices over last nine months in Pakistan.

Although month-to-month changes remain positive, notable jumps occurred in Feb, Sep and Oct, bringing the average monthly growth rate to approximately 4.33 percent. What does it signal for the economy of Pakistan?

A consistent upward movement in gold prices indicates that households and businesses are using gold as a store of value due to low real returns on rupee-denominated assets. Since rising gold prices are often viewed as a hedge against inflation and against low real yields, this persistent rise suggests that inflation expectations remain elevated and that current policy rates are not delivering positive real yields – thereby encouraging a flight into tangible assets.

The rise in prices spans several months and does not indicate seasonal impact, implying that macro forces dominate over short-term seasonal buying. Moreover, the steady trending up of gold prices, with substantial monthly gains, reinforces the perception of investors to further stimulating the physical gold purchases.

To address the issue of persistent rise in gold prices and speculative physical holding, government should introduce market-regulated and sovereign-backed gold-based financial instruments such as Gold Exchange Traded Funds (GETFs) and Sovereign Gold Bonds (SGBs). These two instruments would not only provide investors with formal and safer avenues for gold investment but would also enhance financial inclusion and mobilize savings through capital markets.

GETFs (Gold Exchange Traded Funds) could be issued under SECP (Securities and Exchange Commission of Pakistan) supervision and listed on the Pakistan Stock Exchange (PSX). The CDC (Central Depository Company) could act as a licensed custodian, managing the physical storage of gold with independent monthly auditing to verify holdings. To maintain liquidity and fair prices, investors should be allowed to create or redeem GETFs units in bulk, thereby keeping market prices aligned with their net asset value. Furthermore, GETFs should have very clear capital gains and taxation rules to encourage investor participation.

Likewise, SGBs (Sovereign Gold Bonds) could be issued by the Ministry of Finance, dominated in units linked to international gold price, with conversion into PKR at the current exchange rate at both issuance and redemption. These bonds could have a tenor of 5 to 8 years, offering a premature redemption after the year 3 to ensure flexibility and liquidity. Furthermore, to attract non-speculative investors, a small fixed coupon with capital gain tax exemption (only if held until maturity) could be offered to retail savers who are seeking stability rather than short-term trading gains. All settlements would be in terms of PKR to discourage physical holding and commercial banks could serve as distribution channels. To ensure transparency and public trust, independent audits and clear redemption procedures should be made mandatory.

Collectively, these two financial instruments (GETFs and SGBs) would help stabilize gold prices in Pakistan by channeling business and household savings into regulated and non-physical gold linked financial assets, while simultaneously advancing country’s capital market deepening agenda.

Copyright Business Recorder, 2025