The recent surge in gold prices in Pakistan has left many wondering about the underlying factors driving these unprecedented increases. With a combination of global market influences, local market dynamics, and a lack of transparency in the price-setting process, the price of gold has reached an all-time high. This blog explores the various elements contributing to this surge, the impact of speculation and smuggling, and the need for regulatory oversight in the gold trade.
The All-Time High: A Closer Look at Recent Gold Price Increases
On October 21, the price of one tola of gold in Pakistan surged to a record-breaking PKR 281,800, reflecting a PKR 900 increase from the previous day’s rate. According to the All Sindh Saraf and Jewellers Association (ASSJA), this spike also led to a rise in the 10-gram gold rate by PKR 772, reaching PKR 241,598. Notably, this local increase occurred despite a decline in the global gold price, which dropped by USD 9 per ounce to USD 2,721.
Such discrepancies between local and global prices have raised concerns among market observers and consumers alike. The inconsistency in the price-setting mechanism, particularly when the country does not import gold in significant quantities, has led to skepticism about how daily rates are determined.
The Role of Speculation and Smuggling in the Gold Market
The lack of transparency in gold pricing is not a new issue. Last year, law enforcement agencies (LEAs) cracked down on the gold trade due to reports of speculation, malpractice, smuggling, and hoarding. This resulted in the arrest of five jewellers, despite ongoing negotiations between the ASSJA and LEAs. The crackdown led to the temporary suspension of daily gold price publications from September 13 to late October 2023.
During this period, upcountry traders began issuing their own rates, deviating from the previously agreed-upon practice of uniform pricing across the country. This move further fueled the lack of transparency and inconsistencies in the market. While the resumption of daily price announcements brought some order, the underlying issues of speculation and smuggling continue to impact the market.
The Absence of a Regulatory Body and Its Consequences
One of the key challenges facing the gold market in Pakistan is the absence of a regulatory body to oversee price determination. Habibur Rahman, chairman of the Pakistan Gem and Jewellery Traders and Exporters Association (PGJTEA), highlighted that Pakistan has not seen any official commercial gold imports for the last 15 years. In the absence of a regulatory body, various associations have taken it upon themselves to issue daily rates, leading to inconsistencies and a lack of accountability.
The government has yet to address this issue by establishing a regulatory authority that could standardise daily bullion rates and allow for controlled commercial imports. Rahman suggested that the State Bank of Pakistan could play a crucial role by fixing an annual import quota, such as 500 kgs or a monetary value like USD 100 million. This would help stabilise the market and reduce reliance on smuggled gold, which currently meets about 25% of the demand.
The Need for Transparency and Documentation in Gold Trading
Despite promises made by the ASSJA to LEAs, the implementation of proper documentation and computerisation within the gold trade remains inadequate. Many consumers still do not receive computerised receipts for transactions, and the majority of shops have not adopted computerised trading systems. This lack of documentation not only perpetuates the opacity in the market but also hampers efforts to curb illegal activities like smuggling and speculative trading.
Some traders defend the current system, arguing that daily prices are determined by a combination of global market trends, local demand and supply, and the rupee-dollar exchange rate. However, without a standardized and transparent mechanism, these explanations do little to alleviate consumer concerns.
The Way Forward: Regulatory Oversight and Market Reforms
Given the ongoing issues in the gold market, there is a pressing need for regulatory oversight. Mohammad Haseen Qureishi, chief of the All Karachi Jewellers and Manufacturers Association, emphasised the importance of establishing a powerful regulatory authority that includes market representatives in its decision-making process. Such an authority could ensure that daily rates are set transparently and fairly, thereby reducing speculative trading and other market distortions.
In conclusion, the recent surge in gold prices in Pakistan highlights the complex interplay of global and local factors, as well as the need for greater transparency and regulation in the market. By addressing these issues, the government and market stakeholders can work together to stabilise prices and restore consumer confidence in the gold trade.
