4 things Influencing 1 tola gold price in Pakistan

 

Pakistanis love to invest in gold and the primary motivation behind this is gold’s capacity to safeguard wealth during economic downturns and times of inflation. This precious metal has a good reputation for retaining its value over extended periods, serving as a safeguard against the decline in purchasing power that results from inflation. If you have concerns about the long-term stability of paper currencies and want to protect your wealth, it may be prudent to contemplate gold as a potential investment choice. However, besides earning handsome bucks investors must also keep an eye on the things influencing 1 tola gold price in Pakistan before making a final decision.

If you are an investor and looking to know the reasons behind the rise and fall in prices, then keep reading as we explore the various elements that will affect the 1 tola gold price in Pakistan this week.

Last Week Gold Market Performance

The 1 tola gold price in Pakistan (24K) started the week at Rs 210000 and concluded the week at Rs 218000.

1.   U.S interest rates hike will influence 1 tola gold price in Pakistan

Gold prices experienced a slight decline on Monday, as investors adopted a cautious approach ahead of a crucial Federal Reserve meeting. The strengthening of the dollar added further pressure on metal markets, moving away from its 15-month lows seen earlier in July.

Despite these factors, the price of gold remained close to a two-month high, driven by speculation that the Federal Reserve might signal a pause in future interest rate hikes after an expected final hike that week. Investors and markets were closely observing the Federal Reserve’s 2-day conference related to interest rates. Everyone was expecting that Federal Reserve will increase rates by 25 basis points. But, there were also rumours that the central bank may announce an extended delay in future rate hikes.

The potential pause in rate hikes was seen as a positive development for gold, as increasing interest rates raise the opportunity cost of investing in bullion. However, uncertainties lingered about the precious metal’s ability to reach record highs, mainly due to the expectation of the U.S. rates remaining elevated for a longer duration.

2.   Devaluation of the Pakistan Rupee

Currency experts link the current Pakistani Rupee decline to two main factors. Firstly, it was due to a financial report issued by the International Monetary Fund (IMF) regarding Pakistan’s loan deal. The report highlighted negative features of the country’s economy and warned of upcoming serious economic challenges.

Secondly, the steep decline is also credited to a sudden rise in the import bill. The PML-N had imposed restrictions on imports creating a backlog of consignments. However, after the state bank’s recent agreement, customs clearance activities are now back on track, and commercial institutions are now issuing letters of credit without restrictions.

Current analysts believe that this US dollar value appreciation would certainly raise 1 tola gold price in Pakistan in the near future.

3.   Pakistan has to increase rates to curb Inflation

Sherman Securities has adjusted its inflation projection for July 2023, anticipating a decrease in year-on-year inflation to 25.3% from the previous 29.4% in June. However, the monthly inflation is likely to increase by 1.1%, mainly influenced by hiked housing and food prices.

JS Global Capital analysts expect that the Consumer Price Index (CPI) for July 2023 will be at 26.6%, making it the lowest year-on-year value in the last 7 months. Despite this, there would be a month-on-month increase of 2.09%, and the core inflation rate is projected to be at 21.84% (a 2.59% increase month-on-month). These figures are calculated after taking into account the effect of a noteworthy increase in power costs, which holds a 4.6% weightage in the CPI.

Moreover, Sherman Securities analysts suggest that the inflation values for July would probably be the lowest since December 2022 while making a year-on-year comparison. However, they also anticipate a rise in monthly inflation due to greater prices of important commodities such as wheat, flour, sugar, milk, and tomatoes. Moreover, periodic variations in house rent and wage rates would probably add to the increase in monthly inflation.

Pakistani analysts believe that current high inflation will influence investors and speculators to invest in the bullion market and that will raise the 1 tola gold price in Pakistan.

4. Pakistani Economy in Doldrums

The recently published IMF country report has highlighted various issues faced by the Pakistani economy. In addition to that, it also contains crucial targets, the country’s performance, and related macroeconomic suggestions. IMF released this report immediately after approval of a $3 billion loan package to aid its economic activities over the next nine months.

In addition to that, Pakistan also received a combined amount of 3 billion dollars from UAE and Saudi Arabia after the agreement with the IMF. This cash inflow helped Pakistan to improve its foreign exchange reserves, which now stand at $8.7 billion.

However, businessmen operating in E&P (Exploration and Production) are worried about a severe cash flow crisis due to nonpayment of dues amounting to Rs1,317 billion.

Pakistani economy showed a miserable performance since the removal of former Prime Minister Imran Khan in April 2022. High inflation and political and economic uncertainty have shaken investors’ confidence. A recent survey by Gallup has shown that 62 % of the general public thinks that the PDM alliance is for the current economic disaster. We believe that, the current economic and political uncertainty will play an important role in raising the 1 tola gold price in Pakistan.

What to do?

Gold, as a non-correlated investment option, plays an important role in portfolio diversification. Its 1 tola gold price in Pakistan fluctuates independently as compared to stocks, bonds, and real estate, providing stability during turbulent market phases. By spreading your assets over different investment categories, you can decrease your exposure to market variations, thus protecting your capital. Integrating gold into your portfolio can potentially mitigate risks and improve overall returns.

Gold can be extremely beneficial for long-term investors as 1 tola gold price in Pakistan always rises in the long term. Moreover, precious metals might experience short-term fluctuations and past trends show an upward trajectory over time, possibly leading to considerable returns if you keep your investment for the long term. However, if your objective is to earn quick money, gold is not a suitable asset for your investment approach.