Gold prices have surged 238% in last five years

Consumers face pressure from a punishing cost of living and this, combined with gold price strength, generated a drop in demand for gold jewelry.

Habib ur Rehman, an office bearer of Pakistan Gems & Jewelry Traders and Exports Association, said people were not buying jewelry anymore. “About 5 years ago, people used to buy 10 to 15 tola sets for weddings. Gold was below PKR 90,000/tola then”.

“Now few people buy new gold jewelry and that too in the weight range of 3.5-4.5 tola. Mostly, people bring their old ornaments for remaking when they need gold sets for weddings”.

In Pakistan, gold prices have surged 238% from PKR 85,100/tola in November 30, 2019 to PKR 283,200/tola on November 05, 2024. Since January 01 of this year, gold prices in the domestic market surged 29%, up from PKR 219,850/tola.

International gold prices have surged 83.7% in the last five years from $1,491/ounce to $2,738/ounce. In the last six months, gold prices have increased 17.69%.

Jewelers are seeing drying up sales whether ornaments or gold bars. A trader at Zaibunissa Street in Karachi said the sales almost stopped because the metal was not available at the notified rates.

“If one tries to sell a bar it goes several thousand rupees below the notified prices, and when one tries to buy, it goes above the rate.”

Haroon Chand, President Saraf Association, said people had no buying power and sale of pure gold jewelry had come to almost zero. “Gold traders are now in a fix because there are no sales. Earlier, a lot of money came to real estate and gold, but with tightening government controls and enforcement measures against black money, inflows in gold almost stopped. There is no demand for gold bars either.”

Chand expects global gold prices to exceed $3,000 per ounce and local prices to reach PKR 350,000 per tola in the near term.

The World Gold Council reported a 5% year-on-year increase in total global gold demand to 1,313 tonnes, a record for the third quarter.

Investment demand more than doubled to 364 tonnes, driven by Western investors’ interest in gold ETFs. However, bar and coin demand fell by 9%, while central bank buying slowed to 186 tonnes in Q3.

Gold prices reached an average of $2,474 per ounce during the quarter, hampering global demand for gold jewelry. Total jewelry consumption decreased by 12% year-on-year in volume but increased by 13% in value, indicating that consumers are willing to spend more on smaller quantities of gold products.

The ongoing geopolitical tensions, particularly surrounding the US election and Middle East conflicts, have increased safe-haven demand for gold. This demand, along with a slight pullback in US Treasury bond yields, supports gold prices.

The World Gold Council predicts that ongoing geopolitical tensions and the upcoming US elections will continue to drive up gold prices, regardless of the election outcome.

However, expectations for smaller interest rate cuts by the Federal Reserve and concerns about post-election deficit spending have boosted US bond yields, limiting gold’s gains due to higher yields making non-yielding assets like gold less appealing. Traders are awaiting key US economic data before making further moves.