Gold price in the domestic market registered a new high on Tuesday as it jumped to Rs182,700 per tola after an increase of Rs4,500 – a continuation of trend being witnessed in Pakistan during the past few week.
Hence, the price for 10-gram gold price increased by Rs3,858 to Rs156,636 after the rate increased by $12 to $1,810 per ounce in the international market.
The surge in price comes as a Swiss expert recently warned that gold price could touch $4,000 per ounce in 2023 – more than double from the current level – saying interest rate hikes and recession fears are keep markets volatile.
But his prediction shows a wide range from $2,500 to $4,000 against the present level of $1,814.5 per ounce [one ounce = 28.3495 grams]. However, many others do not agree with his views.
Since December 1, the price has jumped by 13.3 percent (or Rs21,500) per tola. The explosive growth raises questions as to whether the surging price is sustainable or constitutes an unsustainable bubble with the investors shifting their focus to the yellow metal amid a depreciating rupee and dwindling profit in stocks.
The market sources say the gold price in Pakistan old has been “over cost” [over valued] by Rs5,000 per tola as compared to prices in Dubai. This means that, at present, the Pakistani gold market is more expensive than the world market.
Earlier, it was reported that the demand for gold hit a record high at 13 tonnes (worth around $800 million) in July-September 2022, rising by 34 percent quarter-on-quarter.
Previously, the US dollar was the most preferred asset for investment in Pakistan. During high inflation days, investors parked their savings in foreign currency to safeguard their funds from the devaluing rupee.
Meanwhile, the difference between the official price and the rate at which it is being sold is widening with the representative body of jewellers saying that gold is being sold at around Rs185,000 per tola.
What did the Swiss expert say?
Juerg Kiener, managing director and chief investment officer of Swiss Asia Capital, told CNBC that there was a good chance the gold market saw a major move and “it’s not going to be just 10 percent or 20 percent”. The move will “really make new highs”.
Kiener explained that many economies could face “a little bit of a recession” in the first quarter, which would lead to many central banks slowing their pace of interest rate hikes and make gold instantly more attractive. He said gold is also the only asset which every central bank owns.
According to the World Gold Council, central banks bought 400 tonnes of gold in the third quarter, almost doubling the previous record of 241 tonnes during the same period in 2018.
“Since [the] 2000s, the average return [on] gold in any currency is somewhere between 8 percent and 10 percent a year. You haven’t achieved that in the bond market. You have not achieved that in the equity market.”
Kiener also said investors would look to gold with inflation remaining high in many parts of the world. “Gold is a very good inflation hedge, a great catch during stagflation and a great add onto a portfolio.”
No! It won’t rise that much
But Kenny Polcari – senior market strategist at Slatestone Wealth – doesn’t agree with Kiener despite strong demand for gold.
Polcari told CNBC, “I don’t have a $4,000 price target on it, although I’d love to see it go there,” and argued that gold prices would see some pullback and resistance at $1,900 an ounce. Prices would be determined by how inflation responds to interest rate hikes globally, he added.
China is a big buyer
When asked if supply is low due to high demand, Kiener said “there’s always supply, but maybe not at the price you want”.
But high prices are no match for buyers in China who are paying a premium for the precious metal, he said.
Earlier this month, China’s central bank announced it added about $1.8 billion worth of gold to its reserves, bringing the cumulative value to around $112 billion.
“Asia has been a big buyer. And if you look at the whole trade, essentially gold is leaving the West, and it’s going into Asia,” he added.
Invest something in gold
Nikhil Kamath, co-founder of India’s largest brokerage Zerodha, said investors should allocate 10 percent to 20 percent of their portfolio to gold, adding that it’s a “relevant strategy” going into 2023.
“Gold also traditionally has been inversely proportional to inflation, and it has been a good hedge against inflation,” Kamath said.
“If you look at how much gold you require to buy a mean home in the 70s, you probably require the same or lesser amount of gold today than you did back in the 70s, or the 80s, or the 90s,” he added.