Gold
08 March 2023

Gold Saw 30% Increase in 1 Year! What Fueled the Rise in Pakistan?

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Gold has always been an integral asset for people in Pakistan, but in the past couple of years, the increase has been astronomical. 

Gold prices in Pakistan surged by 30% in 2022, and are already seeing higher highs in 2023! This has left many investors scrambling to understand why. 

To gain insight into what fueled this dramatic rise, we must first take an in-depth look at both local and global economic factors. 

In doing so, we can gain a better understanding of the gold market and see which factors impact gold prices the most so you can be prepared for the next bull run. 

In this blog, we’ll explore some of the key drivers behind this dramatic increase and examine how it has impacted Pakistani investors.  

We’ll also provide an outlook on where gold prices are heading in the coming months and years. So you can figure out if this is the right time to invest in gold for you.

The Global Factors Fueling the Gold Price Hikes

The recent 30% rise in gold prices in Pakistan has been a major topic of discussion amongst economists, political advisors, and investors alike. 

This exorbitant rise has also come as a surprise to the general public. However, there are several factors that have contributed to this sudden surge.

In order to understand why gold rose so dramatically within such a short period of time (in Pakistan), it’s important to analyze the global economic conditions that may have influenced these prices. 

     1. The Pandemic Played a Role

With economies all over the world struggling to maintain growth and stability due to the pandemic, gold has become a safe-haven asset for many investors. 

This increased demand for gold has led to higher prices in the market. 

     2. Uncertainty, Instability and Conflict

With several conflicts and tensions boiling around the world, investors are looking for safer options to invest their money. 

Gold is seen as a secure option for them due to its long-term value and protection from market volatility. 

Additionally, socio-economic issues such as rising inflation rates and currency devaluation have led investors to turn to gold as a safer alternative.

     3. Increased Government Spending on Gold

Finally, the rise in gold prices is also due to increased government spending and efforts. 

According to the World Gold Council, the world’s major banks purchased a net of 400 tonnes of Gold in 2022. 

This acquisition is 115% higher than the one in Q2 of this year and four times higher than the one in Q3 of 2021.

The current Gold demand is the greatest since the World Global Council series began. It has nearly doubled the previous Gold record of 241 tonnes in the third quarter of 2018

In Pakistan, the case is no different. 

The government has been investing heavily in gold reserves, which has further fuelled the demand for this precious metal. 

This heightened interest from both the public and private sectors has resulted in a higher demand for gold, and therefore increased prices.

In conclusion, the recent 30% surge in gold prices in Pakistan can be attributed to several factors including global economic conditions, political and social tensions, and efforts by both public and private sectors. 

Although this rise has been unexpected, it’s important to understand the various elements that may have contributed to it in order to properly analyze the situation.

Impact of Gold Price Hikes on the Local Market

The recent 30% surge in gold prices in Pakistan has sparked concern amongst investors and economists. There are several consequences that this exorbitant price rise may have, both positive and negative.

First the negative →

Gold Price Hikes Have Affected Investment Decisions and Strategies

Many investors have shifted their investments towards gold, as it’s seen as a secure asset with long-term value. 

Many more will shift their investments to gold as the currency value depreciates. This has and will further lead to increased demand for gold, eventually driving gold prices further up. 

Gold Price Hikes Have Affected Businesses and Consumers

Small businesses may find themselves in a difficult position if they’re unable to purchase gold at its current high prices, leading to reduced profits or even closure. 

Similarly, rising gold prices could be detrimental for consumers as it could result in increased costs for items such as jewelry.

Now the positive side → 

Advantages of investing in gold during an economic crises

     1. Gold shields you from Inflation

As mentioned earlier, gold is seen as a safe-haven asset and thus has long-term value despite short-term market volatility. 

If you as an investor were in a country going through an economic crisis, you would have greatly shielded yourself from inflation. 

In Pakistan, the government has been increasing the prices of fuel and other essential commodities while incomes have remained stagnant. 

This has led to a decrease in the buying power of the Pak rupee. But the people who invested in safe-haven assets like Gold have seen their asset value grow exponentially. 

     2. Gold provides diversification

During an economic crisis, traditional asset classes such as stocks and bonds can experience a significant decline in value. 

We witnessed this in Pakistan during the current economic crises. The stock market is at its lowest point due to uncertainty with the US dollar rate and the government’s inability to crack a deal with the IMF. 

Investing in gold, therefore, has provided an outlet for diversification to investors.

     3. Gold has offered potential profit opportunities

During the economic crisis in Pakistan, gold has moved from a defensive tool to an offensive profit machine. 

Investors are flocking to safe-haven assets such as gold, which is leading to higher prices. 

Will Gold Prices Continue to Rise in Pakistan?

The current economic crisis in Pakistan has caused severe economic challenges, leading to rising food, gas, and oil prices. 

Additionally, inflation is expected to reach around 30% in FY23, primarily due to flood-related disruptions to the supply of food and other goods, higher energy prices, and difficult external conditions, including tighter global monetary conditions. 

As gold is known to be a hedge against inflation and economic turmoil, it’s reasonable to expect gold prices to rise in Pakistan.

However, it’s important to note that the price of gold is not solely influenced by economic crises. The price of gold is subject to a variety of factors such as demand and supply, global geopolitical events, and the value of the US dollar. 

In the short term, inflation will increase gold’s attractiveness, and investors may shun other asset classes in favor of gold.

In Pakistan’s current economic crisis, where inflation is expected to reach around 30%, gold prices could potentially continue to rise due to its role as a safe haven asset.

It’s also worth noting that the price of gold in Pakistan is subject to local supply and demand factors, which may differ from global trends. Therefore, it’s important to consider both local and global factors when predicting the future price of gold in Pakistan (We’ve discussed global factors above)

The Bottom Line

In conclusion, gold prices in Pakistan have seen a tremendous rise of 30% over the past year. 

This rise has been fueled by a combination of global economic conditions, political instability, and an increase in demand for gold. 

The lesson to learn here is that the global recession is starting which means we’re going to experience more global inflation and uncertainty. 

The war between Russia and Ukraine is also seeing no end in sight. If the crisis expands to other parts of the world, it will be unwise not to already have gold investments in place. 

You shouldn’t be discouraged from buying physical gold out of fear of theft. With ISA Bullion, you can buy gold instantly and trade it anytime you want. 

We also keep your physical gold holdings safe in our vaults and can dispatch them to you in case you wish to keep it with you. (See why ISA Bullion here.) 

Getting started is easy. You can start locking in gold profits with ISA Bullion from today!

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