In the local market too, the price of the precious metal crossed Rs14300 per 10-gram but later on fell and is now slightly above Rs14000.
Analysts say gold’s traditional appeal as a safe asset to hold in times of economic uncertainty has made it appealing in today’s troubled markets. Concerns about the US economy triggered by the sub-prime credit crunch and a possible further weakening of the dollar have diverted investors towards gold.
Investment bank Goldman Sachs has upgraded its three-month price forecast for gold to $775 an ounce from $700 an ounce on expectation that the dollar would weaken further. Barclays Capital has also raised its gold price forecast to $750 per ounce for this quarter.
Bankers well versed with international investment scenario say that dollar assets have moved towards gold because the US currency is weakening. “Also, as the dollar declines against euro and pound, gold becomes cheaper in these two currencies,” one of them said. Hence an increase in the demand for the yellow metal in places where investors are holding long-term assets in euro and pound.
The US unit has fallen to a historic low of 1.42 to a euro thus losing about eight per cent of its worth since January 2007.
It has also declined to 2.04 per pound depicting a loss of 4.6 per cent since the beginning of this year.
But the 18 per cent gain that gold has made since January is also attributable to the fact that its demand in China, India and the UAE has grown with an increase in the income levels in these countries.
Currently, Indians are not only buying gold for personal use but they are also making higher investment in it. According to a World Gold Council report, sales of gold coins and bars in India are likely to maintain an annual growth of 30-40 percent over the next few years as higher incomes spur investment purchases.
“Indians are earning more, spending more and investing more,” said Keyur Shah, associate director of the council’s India office, at a recent trade conference in Mumbai.
Bullion sales in April-June 2007 grew 98 per cent to 77 tonnes, while in 2006 Indians bought 186 tonnes of gold coins and bars, up 34 per cent over the previous year.
Demand for gold in China, including the Chinese mainland, Hong Kong, and Taiwan has also risen 29 per cent to 85.5 tons in April-June 2007.
Booming demand from Middle East buyers has also boosted the demand for the yellow metal in Dubai. Gold sales in August were up 26 per cent this year compared to the same month in 2006. Major traders anticipate that the growing income levels in the UAE would keep investors’ and users’ appetite for gold intact in future.
In the local market gold is bullish not only in line with the global trend but also because Pakistanis purchase lot of gold and jewellery in Ramazan ahead of wedding season starting after Eid.
Interestingly, however, gold import has almost come to a halt and it’s the gold extracted from old jewellery that is being sold these days.
Market sources say gold importers are not importing the yellow metal after the imposition of one per cent wealth tax on gold imports from July. Some of them insist that smuggling of low quality gold from Dubai and from India has resurfaced. They estimate that at least 30 per cent of gold demand in Pakistan is met through smuggling.
There are others who say that gold imports have almost come to a halt because of very high prices. “When prices are stable Pakistan imports more than half a tonne gold every month from Dubai,” a leading gold trader based at Zaibunnisa Street in Karachi said.
Official statistics also show a big decline in gold imports. In July-August this year the import of gold slumped to 260 kg only from 1135 kg in a year-ago period, according to data released by the Federal Bureau of Statistics.
Market sources say that gold imports would resume once the prices stabilise and investors re-enter the market seeking gold bars and coins. “Most of them are currently busy in gold future trading in Dubai and elsewhere.”
“Some leading gold investors, who I know personally are now investing in euro and pound,” disclosed owner of a major foreign exchange company located on I.I. Chundrigar Road, Karachi.
The euro has risen 8.3 per cent in the local open market since the start of this year whereas pound sterling has gained 4.8 per cent. This much appreciation in the two key currencies is not big enough to keep investors glued. “But actually these currencies have made major gains in July-September 2007 and the bulk of investment- particularly from the interior of Punjab- has come during this period,” said a dealer.
Bankers say that one of the things that have attracted a lot of investment in international bullion market is that some countries including China and Iran have shifted part of their forex reserves from dollar to euro and other non-dollar currencies.
Other countries including Russia, Greece and Kazakhstan have even bought large amounts of gold to keep in reserves. The State Bank of Pakistan is not known to have increased its gold reserves.
At the end of August this year Pakistan had $1.4 billion worth of gold reserves. The SBP continues to keep the bulk of its foreign reserves in dollars and has not shifted any significant part of it to Euro or other key currencies.
However, the central bank now keeps a sizable portion of total reserves in US treasuries and other securities. At the end of August $3.5 billion or 22 per cent of total reserve assets stood invested in securities.
Gold and Jewellery Strategic Working Group, a business lobby, claims that gold demand in Pakistan is declining because of high international prices. Gold traders also confirm this adding that sale of gold and jewellery (mostly made of recycled gold) has only recently taken off, ahead of Eid, after several months of lowly business.
“But as the Asian economies as a whole march towards higher growth and are bound to see higher inflation in the process, gold investment is bound to rise,” said a forex analyst who works for a big foreign bank.
He said a large number of people, particularly those in the middle class, traditionally buy gold years before the planned marriages. This also protects their life-long savings against inflation. “This tradition has weakened lately due to high prices of gold and a not-so-fast growth in the income levels of the middle class. But it is still there…and would remain there for years to come.”