Gold prices in Pakistan have largely shrugged off international market trends largely due to the rupee’s devaluation against the US dollar. While economic and political uncertainty is expected to keep consumer sentiment low, the gem and jewellery industry seems to offer massive economic potential, including prospects for boosting our exports.
International gold prices have slid 10% this year through Oct. 31, having plunged in September to the lowest level since April 2020. This came as the US Federal Reserve aggressively raised interest rates, which dampens the appeal of asset classes that yield no interest.
There’s another factor behind gold price weakness in the international market, a strengthening Dollar Index. A stronger dollar – which makes the metal more expensive in other currencies — helps keep the price of gold lower via reduced demand.
What’s Driving High Gold Prices in Pakistan?
Gems and Jewellers Association Rawalpindi President Sheikh Asif Idress told ProPakistani that the dollar exchange rate is the prime reason behind elevated gold prices in Pakistan.
The rupee has depreciated 25% since Jan. 4, 2022, when the rate was at 176.75 against the dollar. So even though international gold prices have fallen, domestic consumers had to pay a higher price at home due to a weakening rupee.
The price of per tola gold in Pakistan was hovering around Rs. 152,000 on Tuesday.
On the other hand, demand is low as only few people are interested in purchasing gold amid the ongoing inflation squeeze, while supply seems to be high with more people putting their gold stocks up for sale, Idress said.
Economic and political turmoil is further dampening sentiment, with people turning toward artificial jewelry, he said. Another factor hampering fresh gold purchases is the internal security situation of Pakistan as people remain concerned about potential theft scenarios.
Forward-Looking
Gold prices are expected to remain high in Pakistan unless the rupee rebounds against the dollar.
Idress said:
“I don’t think the rupee will recover much. Devaluation is bound to happen.”
Pakistan held $3.48 billion of gold reserves as of Sept. 30, 2022, down from $3.99 billion in February 2022, data from the State Bank of Pakistan showed. If the government decides to rebuild its gold reserves, that would help stimulate demand for the yellow metal, Idress said.
Economic Potential
More importantly, the gem industry represents a great growth opportunity.
Pakistan has more than 51 mines of precious stones across northern areas, Swat, Kashmir, Gilgit-Baltistan and Balochistan, Idress said. If the government focuses on their mining and value addition, Pakistan could boost its exports and bring down its trade deficit, he added.
Reviving the mining sector would also create jobs and result in improved economic prospects for many households, Idress said.
In addition, Pakistan could export services, rather than colored gems and colored stones, but for that the government would have to undertake up-skilling initiatives for the current labor force in the gem industry.
