Fragile Pakistani Economy and 1 tola gold price in Pakistan

 

Pakistani investors love to invest in gold due to its durability and inert nature. Gold bullion presents unique advantages that are unmatched by nearly any other investment, offering Pakistani investors substantial benefits. Right now it is one of the most valuable investment options due to political and economic uncertainty. People are flocking to the bullion market as 1 tola gold price in Pakistan has shown a considerable rise in last few years.

If you are gold investor, then keep reading as we will also identify factors that could affect 1 tola gold price in Pakistan.

Last Week Gold Market Performance

The 1 tola gold price in Pakistan (24K) started the week at Rs. 220,100 and ended the week at Rs 221100.

1.   Economic Data can influence gold prices

Gold prices remained range-bound in Asian trading on Tuesday as investors awaited upcoming economic data for trading signals, though the short-term outlook for the precious metal stayed restricted. Bullion prices stayed largely within a $2,000 to $2,050 an ounce range established over the past two months, with the potential upside curbed by expectations of sustained higher U.S. interest rates.

Comments from Federal Reserve officials reinforced this perspective, indicating the central bank’s reluctance to ease policy due to persistent inflation. This stance supported the dollar, which remained near three-month highs.

Spot gold inched up 0.1% to $2,033.36 an ounce, while gold futures for April climbed 0.2% to $2,042.60 an ounce this week.

Gold investors are basically now focusing on the upcoming U.S. economic data to get an idea about the market direction. Other than that forthcoming U.S GDP data will also affect the monetary policy and gold prices.

Expectations of prolonged higher interest rates unfavorably affect non-yielding assets like gold, as it raises the opportunity cost of holding the metal.

U.S gold analysts believe that interest rate will ease in upcoming months and they will affect bullion market. They affirmed gold as an appealing investment and hedge against risk events, maintaining year-end price forecasts at $2,250 an ounce for 2024’s close and at $2,050 an ounce by June 2024.

The prevailing U.S economic conditions can decrease the 1 tola gold price in Pakistan.

2.   Depreciating Rupee will Affect 1 tola gold price in Pakistan

The Pakistani rupee commenced the week with positive movement against the US Dollar today, opening trade at 280 in the interbank market. While it remained relatively stable against the greenback, there was limited activity due to a scarcity in the open market. Ongoing economic and political uncertainties, combined with traders’ low confidence in the current business climate, resulted in a depletion of USD supply during today’s session.

Throughout the last week, the interbank rate hovered around 280 before concluding at the 279 level. Similarly, open market rates across various currency counters ranged between 279 and 280 today.

On a year-to-date basis, the rupee has appreciated by 2.42 percent. However, despite this recent gain, the rupee has depreciated by nearly Rs. 52 since January 2023 and by Rs. 96.3 against the greenback since April 2022. Considering today’s exchange rate movements, the PKR experienced a gain of 16 paisas.

Gold experts believe that this currency depreciation is good for the bullion market and will increase the 1 tola gold price in Pakistan. The future is good for bullion market as Pakistani rupee will depreciate in near future.

3.      Fragile Pakistani Economy can be good for 1 Tola Gold price in Pakistan

As per State Bank of Pakistan (SBP), the federal government borrowed over Rs4 trillion from commercial banks during the first seven months of the current fiscal year. After certain adjustments, primarily related to the repayment of debts owed to the State Bank of Pakistan and net negative borrowings by provinces, the government sector’s borrowings for budgetary support amounted to Rs3 trillion.

The question arises: will the new coalition government contribute further to this substantial borrowing trend? It appears likely. In the preceding fiscal year, the government sector’s budgetary borrowings totaled Rs3.75 trillion. Even under the most optimistic scenario, this year’s total borrowings are poised to either surpass this figure or closely approach it.

In addition to that Pakistan has to pay its external liabilities and that poses a default risk for the country. This is an ideal situation for the gold investors as they can easily take advantage of this scenario to increase their investments in gold.

4.   High Inflation Will Increase 1 Tola Gold Price in Pakistan

The inflation rate in January 2024 crossed 28.3 % and surpassed all expectations. It also decreased the hopes for a reduction in the policy rate in March 2024. The increasing trend observed in treasury bills’ yields during the previous week’s auction further eliminated even the slightest possibility of such a revision.

Economic experts believe that the new government can’t collaborate more effectively with the central bank to bring inflation down to the targeted range of 20 to 22 percent anytime soon .The current situation will prevail due to the lasting effects of recent increases in gas and electricity prices. They are expected to continue influencing the prices of all goods and services in the coming months.

Moreover, the high interest rates and escalating energy prices will increase challenges for companies and small businesses to sustain themselves. While large-scale manufacturing (LSM) experienced growth in December 2023, the overall LSM output for July-December 2023 exhibited a net decline of 0.4 percent.

Gold market analysts believe that 1 tola gold price in Pakistan will escalate next few weeks due to increasing inflation in Pakistan. Since, high inflation forces people to invest in the safe haven bullion market.

Final Words

Gold serves as an excellent investment choice for individuals seeking to construct a diversified, long-term portfolio. Many investors adhere to the principle of not putting all their eggs in one basket, and incorporating gold into their investment mix is a prudent strategy. Gold offers a reliable method of hedging against risk, as its market often moves in the opposite direction of many other investment vehicles. By adding gold to your portfolio, you can enhance diversification and bolster protection for your investments. Especially when 1 tola gold price in Pakistan has increased from 129,000 to well above 200,000 Pakistani Rupees in just last 2 years.