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Where is the gold stock coming from?

Updated December 24, 2018

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The demand for gold in Pakistan has moderated, according to a World Gold Council report. ─ Reuters/File
The demand for gold in Pakistan has moderated, according to a World Gold Council report. ─ Reuters/File

WITH the recent spike in prices, gold demand in Pakistan has moderated according to a report by the World Gold Council (WGC), the global body that monitors the gold market. Some merchants express doubts about the finding but sadly no one in Pakistan seems to be in a position to endorse or contest the report owing to lack of local data.

The rupee depreciation of around 26 per cent against dollar this year has contributed to the rising domestic price of gold and made price sensitive buyers reluctant, suppressing demand by about 11pc.

Normally in times of economic uncertainty, when the market is volatile and risk perception high in capital, currency and property markets, demand for gold is a safe option for saving as capital rises. The stiffer rules of disclosures in the formal sectors ought to make investment in cash-based gold a more viable option for Pakistanis who prefer to deal under the radar.

“People are required to furnish their identity in all high-net dealings except the purchase of gold. Anyone who can afford can buy as much gold as they want without leaving a trace of the deal,” says Haji Haroon Chand, president, All Sindh Saraf and Jewelers Association commented.

“Yes, the rising price has pushed the yellow metal beyond the reach of the lower classes and we have seen gold shops closing down in modest localities, but rich Pakistanis continue to spend liberally both on gold jewellery and bullions,” he said.

The gold rate hit an all time high at Rs68,000 per tola (11.6 grams) last week in the domestic market, perceived to have pushed middle-class buyers to the sidelines.

No government agency, at any tier, monitors or regulates the market. In the absence of government oversight, the gold market operates under the influence of key players besides the forces of demand and supply

Market operators insist that the upward price movement has not dissuaded investors who prefer to operate under the radar, particularly when they wish to move capital around. According to market sources investors command about 40pc of total gold trade in the domestic market.

In absence of government oversight the gold market in the country operates under the influence of key players besides market forces of demand and supply.

The gold price is set and announced daily by the merchant bodies based on calculations incorporating several factors. Besides demand and supply the two important determinants are: bullion price movement in the international market and the rupee dollar parity.

The WGC reports at regular intervals. Its quarterly reporting also includes demand and supply of the precious metal at national levels across the world.

In its latest publication the council has recorded an 11pc fall in gold demand in Pakistan in the third quarter of 2018. In 2017 gold demand increased by 7pc in Pakistan. According to the same source the fall in the demand for jewellery and gold bars in Pakistan is more than proportional: jewellery demand shrunk by 11pc and bullion by 13pc.

A search for a domestic source that collects data of sale-purchase, total stock and changes in volume available locally proved futile. No government agency, at any tier, monitors or regulates the market. The Ministry of Commerce monitors imports and exports but the numbers are not reflective of the actual scale of gold trade in Pakistan that everyone agrees is huge.

According to a document forwarded by Iqbal Tabish, CEO, Pakistan Gems and Jewellery Development Company, the annual value of the national jewellery market is worth $10 billion or Rs1.4 trillion at the current exchange rate.

The annual consumption of gold is stated to be 170 tonnes. The WGC document claims that the sector employs 0.53 million people in about 90,000 units countrywide. It reports $4.058bn export of jewellery over 10-year period (2006-07 to 2016-17) that comes to around $400m of export per annum.

Mr Tabish clarified that the company is vested with the task of promoting the sector by providing skills training facilities and working towards globally accepted standardisation of gold quality in the country, to build brand credibility in the international market.

Defending the company that was launched in 2006, he said it has since established five training centres, five gem identification labs, two assaying and hallmarking centres, two gem exchanges and organised various trade shows.

“We have made these facilities operational but do not have a mandate to force gold traders to register or trade locally and globally only in gold hallmarked by the competent agency,”

Mr Tabish told Dawn.

The gold merchants told Dawn that there is a ban on commercial import or export of gold and jewellery and the trade figures of the Ministry of Commerce reflect shipments that travel under the ‘Gold Entrustment Scheme’. The scheme caters to companies that have deals with foreign partners who send raw gold to be processed into jewellery in Pakistan for an agreed price.

Haji Chand was anxious: “The lucrative gold business is slipping from the hands of traditional generational gold merchants to unscrupulous greedy elements out to make a quick kill. They have no love for the craft or the dying generation of craftsmen.”

Arif Patel, former chairman of jewellers association, unhappy with the government’s stance raised a pertinent question: “Over the past seven years not even a gram of gold has been commercially imported but there is no dearth of supply in the local market that consumes at least 150 tonnes of gold annually. In absence of local mining where is this stock coming from?”

Abdul Razzak, advisor at the gold trade promotion company, said there is a dire need to pay attention to the sector to promote genuine traders and craftsmen and block the entry of fraudulent elements in a business where credibility is important.

An expert dealing with the issue of transparency in financial dealing was perturbed over the government’s attitude towards the sector: “Despite the potential use of gold for money laundering and sufficient evidence of the activity by unidentified investors, the suggestion to register traders and monitor high worth transactions have not yielded results thus far.

“Regulatory oversight does not exist and no one seems to have a clue about the actual total stock of yellow metal in the country in either its raw form, as bullion or jewellery in possession of traders and households,” he said.

Contact was made with federal secretaries in the ministries of commerce, industries and finance but they informed that monitoring the gold trade does not fall under their domain.

Gold enjoys a cherished status in sub-continental culture as it is the metal of choice for ladies ornaments.

Published in Dawn, The Business and Finance Weekly, December 24th, 2018