EDITOR'S NOTE: Although India and Pakistan are politically and religiously opposed, they do share one resounding cultural trait: they’re smart enough to know that gold is the only effective hedge against total economic collapse. Pakistan’s economic landscape exhibits conditions of extreme challenge and burden. They’re monetary policy is failing, and the IMF is failing to help the country stem its monetary hemorrhaging. The Pakistani people, however, seem to know well their government’s BS. In short, Pakistan’s record purchases of gold just moved the needle on price. Read on to see analysts’ take on the matter and what it might mean for global gold prices moving forward.
As Pakistan is grappling to meet its external financing needs, local gold prices hit record highs amid a rush to buy the precious metal in fear of worse economic times ahead.
Gold advanced to all-time highs of 164,150 rupees ($731) a tola — a local unit that equates to around 12 grams, data released by All Pakistan Sarafa Gems and Jewellers Association (APSGJA) showed Wednesday. Silver prices also jumped to Rs1,860 per tola.
According to the World Gold Council, gold demand in Pakistan also rose 34% to 13 tons in the third quarter — the most significant quarterly advance in around three years.
According to local media, investors are quickly buying gold as a safe haven amid continued weakness in the Pakistani rupee against the U.S. dollar and the dire economic outlook. There is also fear that banks won't be able to clear payments.
The rally is way ahead of global gold prices, with gold priced in the U.S. dollar trading near $1,800, which is still more than $200 off its record highs.
Gold in USD has struggled for most of the year as the Federal Reserve aggressively tightened rates and the U.S. dollar remained strong. Following the latest uptick in the precious metal's prices, spot gold was still down around 1.6% year-to-date.
Pakistan has been struggling to get the International Monetary Fund's loan and has been experiencing some dollar shortages. The world's fifth-most populous nation is also still dealing with the devastation caused by recent floods, with an estimated damage of over $30 billion. Following the floods, Fitch Ratings downgraded Pakistan further into junk territory in October.
At the end of November, Pakistan's central bank surprised the market by raising rates 100 basis points to 16%, citing its aggressive fight against inflation. Overall, Pakistan has raised rates by 625 basis points this year.
In the meantime, the country's inflation from November slowed to 23.8% from October's annualized 26.6%, according to the nation's statistics bureau.
Pakistan's foreign exchange reserves dropped $784 million to $6.7 billion as of last week, the nation's central bank said in a statement on Thursday.
Local broadcaster ARY News reported earlier this month that Pakistan was looking to get $4.2 billion from Saudi Arabia to boost those reserves.
However, Pakistan's Finance Division refuted reports of an "economic emergency" on Tuesday, stating that it "not only strongly rebuts the assertions made in the said message, but also categorically denies it and that there is no planning to impose economic emergency."
Pakistani central bank chief Jameel Ahmad also noted this month that all debt repayments are on schedule, and he expects the country's foreign exchange reserves to rise in the second half of the current fiscal year.
Finance Division issues a rebuttal on false message on supposed economic emergency proposals been circulating on social media. pic.twitter.com/chTW80SyZV
— Ministry of Finance (@FinMinistryPak) December 6, 2022
Originally published on Kitco News.