In a world where trust in traditional institutions is waning, a timeless haven is emerging: gold.
The Golden Rush: A Safe Haven in Uncertain Times
Pakistanis, like many others, are seeking refuge in the oldest form of currency - gold. As confidence in the stability of institutions wavers, this precious metal has become a beacon of security.
"It's simple; those with funds outside the system can easily convert their rupees into gold," explains Shabbar Zaidi, a former Federal Board of Revenue chairman.
The recent rollercoaster ride of gold prices reflects a broader trend. While not a new phenomenon, the pace of investment in gold has accelerated, especially during times of economic uncertainty.
On October 20th, international gold prices hit an all-time high of $4,328 per ounce, with Pakistani rates climbing to Rs448,649 per tola. However, these prices are not uniform across platforms, and at the time of writing, they had fallen to Rs424,197 per tola in Pakistan and $4,082 per ounce internationally.
The Silver Lining?
While gold shines, silver presents a different story. Haji Muhammad Iqbal, a trader and jeweller from Lahore, highlights the risks. "Most buyers don't understand the market swings," he says. "They're not investors; they're following a trend."
Iqbal recalls a customer who wanted to "invest" in a single gram of gold at an exorbitant price. "I asked him, is one gram an investment?" he chuckles.
Many women, too, are making the switch from jewellery to gold bars, assuming they're making a wise move. However, Iqbal warns, "The math doesn't add up. Jewellery involves charges and wastage, which are lost when sold."
For those unable to afford gold, silver seems like an attractive alternative. But Iqbal cautions, "Trading in silver is risky. People pay a premium, hoping for quick gains. When prices fall, they first lose that premium, and then face losses on the metal itself."
He's seen silver prices drop sharply, wiping out profits overnight. Unlike gold, where losses can be recovered, silver's volatility can be devastating.
Bullion's Appeal
Historically, the US dollar has been the go-to safe haven. During the 2008 crisis and the pandemic, the dollar strengthened as people sought security. However, with rising geopolitical tensions and eroding confidence in the American system, central banks and investors are turning to gold.
The Financial Times reports that central banks' demand for gold remains at record highs, accounting for over 20% of global demand. Gold is poised to replace US Treasuries as the world's dominant reserve asset, returning bullion to its central role in the global monetary system.
When the US Federal Reserve cuts interest rates, investors move funds from money markets to gold. With expectations of rate cuts and renewed tensions between the US and China, gold prices continue their upward trend.
A Global Trend, a Local Instinct
As global prices rise, individual investors follow suit. Pakistanis, instinctively protecting their value, are turning to gold. This surge in gold prices is not a sudden phenomenon but a long-term trend.
Qasim Shikarpuri, President of the All Pakistan Sarafa Gems and Jewellers Association, recalls selling gold for Rs240 per tola half a century ago. Today, gold's allure remains unchanged.
Even recently, gold has outperformed all other asset classes. Faysal Funds CEO Nadir Rahman highlights this in his podcast, "All Things Money."
Pakistan's Macroeconomic Advantage
Pakistan's macroeconomic environment favors gold buying. Ali Farid Khwaja, CEO of Oxford Frontier Capital, explains that with increased scrutiny on the real estate sector under the IMF program, money is flowing into gold.
In Karachi alone, an estimated 8,000-10,000 tolas are traded daily, with money coming from various businesses. Gold offers higher profits, especially in tough economic conditions.
Shikarpuri, an experienced trader, says, "I've never seen gold increase by $100 daily." As the US Federal Reserve cuts interest rates, gold's rise will continue, drawing funds from other activities.
Gold's appeal in Pakistan is multifaceted: cultural affinity, ease of purchase, and liquidity. One can buy gold, keep it at home, and sell it when needed, no questions asked.
Trading Channels
Gold trading in Pakistan occurs through multiple channels. Investors and jewellers primarily use the Karachi Bullion Exchange and ARY Gold, while everyday buyers purchase gold biscuits from jewelry shops at slightly higher prices.
Khwaja explains that legally, jewellers should only sell jewelry made from consumers' gold, but this is not always the case in Pakistan, where both jewelry and bullion are sold.
The Pakistan Mercantile Exchange (PMEX) offers a regulated platform for gold trading, including millitola, a smaller denomination for everyday investors. However, its reach is limited, and buying through PMEX is more expensive due to regulation and taxation.
The Informal Gold Market
Informal spot buying, or the 'Satta mafia,' also occurs on social media platforms like WhatsApp. While authorities have cracked down on these activities, nearly 90% have been eliminated.
Gold in Pakistan is among the cheapest in the world, possibly due to unofficial mining in Balochistan, according to Shikarpuri. At the time of the conversation, gold was underpriced by Rs10,000-12,000 per tola compared to global rates.
A Complex Equation
The demand for gold is influenced by various factors, including the US dollar. As US-China relations fluctuate and Trump reshapes the economic and political landscape, gold prices, and the fortunes of small investors in Pakistan, rise and fall.
In a world of uncertainty, gold remains a beacon of stability, a haven for those seeking to protect their wealth. But here's where it gets controversial: is gold a safe bet, or are there hidden risks? What do you think? Share your thoughts in the comments!
