The concept of gold as money, its ‘worth’ has been recognized all across the world. Gold has been used to sustain ‘fiat’ currencies. Government-issued money is fiat money, and most modern paper currencies are fiat.
The central bank of a country holds gold reserves as a measure of value, a guarantee of payment to depositors, or a means of protecting the currency. The value of a country’s currency is intimately connected to its imports and exports. The value of a currency falls when imports of the country are more than their exports.
Gold demand is woven into Pakistani culture and heritage, as well as a need for financial stability. As a result, gold is seen as both an investment and an ornament. According to Abid Qaiyum Suleri, a renowned economist, a country like Pakistan, being a significant importer of gold, will certainly end up with a weaker currency when the price of gold rises.
So, here are a few factors that affect the gold rate in Pakistan.
Gold is a highly desirable commodity with numerous applications. Apart from being a precious metal, gold is widely used in the manufacturing industry, for example, as an electrical conductor and a substance in life-support devices.
Gold can also be bought and sold as an investment. Some investors prefer physical gold, such as gold bullion, coins, or jewelry, while others prefer “paper” gold.
Increased demand for gold is always accompanied by a rise in the yellow metal price. Pakistan is always being the major importer of gold, but due to its high demand, the gold rate in Pakistan keeps fluctuating.
GOLD AND FIAT CURRENCIES
Many countries used to employ the gold standard, which meant that the value of their currency or paper money was based on the price of gold. For instance, if one ounce of gold costs $1,000, one dollar is 1/1000th of an ounce.
This is no longer the situation now. Most governments have switched to fiat currencies, in which the currency’s value is determined by factors such as money supply and trust in the government’s ability to fulfill the country’s debts. While this involves greater risk, it allows governments to adjust monetary supply following their economic aims rather than the amount of gold they have in their treasury.
This also means that when people lose faith in the government or the economy, the value of their currency tends to collapse along with it. Many investors turn to gold in such situations to protect their wealth from deteriorating due to currency depreciation.
GOLD AS A SAFE HAVEN ASSET
The price of gold rises as a haven asset in the presence of events that cause economic uncertainty, such as the COVID-19 pandemic and its successive waves. During periods of high volatility, gold prices rise due to increased investor demand.
Indeed, investor fears of a pandemic propelled gold prices over the roof throughout 2020, reaching an all-time high in August, when it breached the US$2,000 per ounce barrier for the first time in New York trading.
SUPPLY OF AVAILABLE GOLD
The weight of all gold extracted throughout history is believed to be over 198,000,000 kilograms. This means that all of the gold produced could be crammed into a single cube measuring around 21 meters in length and depth!
Each year, gold mining adds between 2,500,000 and 3,000,000 kg to the overall supply of gold above ground. This amount is frequently insufficient to meet global demand. Unexpectedly low supply, such as miners discovering less gold than anticipated, can drive gold prices even higher.
The gold rates in Pakistan are also determined by the worldwide gold demand. In the jewelry market, gold is used on a huge scale. Gold is seen as a kind of wealth in Asian communities, and it is handed down from one generation to another.
Today, on December 3, 2021, the gold rate in Pakistan stands at Rs117,300 24k per tola. Karachi Sarafa Bazar Association is the central hub for the gold rate, and it’s followed by every city. Today’s gold rate for different cities includes Karachi, Lahore, Islamabad, Multan, and Peshawar, among others.