5 Factors affecting 1 tola gold price in Pakistan

Are you excited to explore the captivating realm of gold investment in Pakistan? Believe me, it’s not all about glitzy jewellery and flashy accessories. It is an investment option that can be used to earn long-term returns. However, people sometimes fear the unpredictability present in the bullion market. The 1 tola gold price in Pakistan is influenced by numerous factors. From worldwide market trends and currency exchange rates to local demand and governmental regulations, it’s a whirlwind of factors that can shake things up. So, get ready, as we unveil the mysteries behind the ever-changing 1 tola gold price in Pakistan.

Gold Market Performance last week

The 1 tola gold price in Pakistan (24K) started the week at Rs 236000 and ended the week at Rs 232100.

Global demand and supply

Gold prices declined slightly on Monday following a brief recovery, as investors exhibited hesitancy due to risk aversion and concerns over the US debt ceiling.

Currently, the spot price of gold (XAU/USD) is hovering around the $1,970 level, trading 0.25% lower than its opening price. Last week, the precious metal experienced a loss of 1.65%, representing its weakest performance in the past three months.

While it is improbable, the failure to reach a consensus among members of Congress could potentially result in a severe and damaging default for the world’s largest economy. Experts in Pakistan believe that the US default will make the 1 tola gold price in Pakistan skyrocket in the next few weeks.

USD to PKR exchange rate

Based on data from the State Bank of Pakistan (SBP), the exchange rate between the Pakistani rupee and the US dollar stood at Rs285.50 in the inter-bank market on Friday. For the past few days, the rupee has depreciated by 0.23%, equivalent to Rs0.66. The decrease in the Pakistani rupee value will increase the 1 tola gold price in Pakistan

Inflation

In April, Pakistan experienced its highest inflation rate ever recorded at 36.4%, while its currency depreciated to an all-time low. These developments occurred as discussions with the International Monetary Fund (IMF) began in February intending to stabilize Pakistan’s market-based exchange rate.

The IMF has set certain conditions to resume funding, which have been on hold since November. These conditions include implementing challenging fiscal adjustments such as reducing or eliminating subsidies, raising electricity and gas tariffs, increasing oil prices, and arranging external financing.

As a result, at times of high inflation, Pakistani investors often resort to investing in gold as a way to safeguard their assets and retain their value. This would increase the bullion demand and 1 tola gold price in Pakistan, as more individuals are likely to be interested in purchasing it.

 Economic Uncertainty

A detailed report titled “Pakistan Economy: Consequences of Pakistan’s Possible Default” by Sana Tawfik, an economist at Arif Habib Limited (AHL) Research sheds light on the increasing risk of Pakistan defaulting on its financial obligations due to the lack of progress in its dealings with the International Monetary Fund (IMF). The report highlights the precarious state of Pakistan’s foreign exchange reserves, which currently stand at a dangerously low level of $4.3 billion. Additionally, the country faces significant debt repayments until June 2024. To meet the external debt servicing requirement of $27 billion in the fiscal year 2024, Pakistan still faces a shortfall of $5 billion. Over the period from fiscal year 2024 to 2027, the country’s total external debt servicing requirement amounts to $73 billion.

Although the government asserts that it is not abandoning the ongoing IMF loan program valued at $6.7 billion, Moody’s Investors Services recently forecasted that if the IMF program is not resumed, Pakistan will default on its debt payments after June 2023.

Historically, when countries default on their sovereign debt, it often leads to a contraction in their Gross Domestic Product (GDP). For instance, after Sri Lanka defaulted in 2022, its GDP contracted by 7.8%. According to a study conducted by the Centre for Economic Policy Research (CEPR), the average GDP contraction immediately following a default was 1.6%, which rose to 3.3% after two years. Recently, the State Bank of Pakistan (SBP) announced a significant downward revision of the projected economic growth rate, with AHL Research anticipating a growth rate of only 1% for the current fiscal year. Some local research institutions have even predicted an economic downturn before the potential default takes place.

Political Uncertainty

The current political climate is experiencing heightened uncertainty as the PML-N and its allies have opted to exert pressure on the apex court through protests and criticism. Additionally, they have violated the constitution by failing to conduct provincial assemblies’ elections within the stipulated 90-day timeframe. As a result, people are focusing on the Supreme Court. As it remains unclear how it will address this constitutional violation. Furthermore, the government led by PML-N is reportedly making preparations to apprehend Imran Khan, which could further escalate the political uncertainty within the country. In this context, the federal government must demonstrate maturity and actively seek political solutions to prevent the country from descending into chaos or anarchy. All in all, these economic and political uncertainties will positively influence the 1 tola gold price in Pakistan.

What to do?

To sum up, investing in gold in Pakistan has its unique charm and potential. People regard gold as a reliable means of preserving wealth and safeguarding against economic apprehensions due to its rich history and inherent value. Despite the occasional 1 tola gold price in Pakistan fluctuations, these investments provide portfolio diversification and stability. However, it is crucial to carefully assess market conditions, global factors, and personal financial objectives before delving into gold investment. Gold continues to captivate individuals in Pakistan as a symbol of prosperity and a tangible asset worthy of consideration for long-term wealth preservation. Whether one’s intention is to adorn oneself, present a gift, or pursue investment goals.