Gold shines on investors’ radar over rupee value speculation

KARACHI: With bearish sentiment prevailing at the stock market, Pakistanis are turning their eyes on gold.

Following strong speculation over rupee devaluation and coupled with a steep drop in share prices at the Pakistan Stock Exchange in recent months, investors are looking at the safe-haven asset to earn maximum returns on their savings.

According to figures of the Pakistan Bureau of Statistics (PBS) figures, gold imports doubled to 62 kilograms in August alone, up from 31 kilograms in the same month of the preceding year. They stood at 117kg in the first two months (July-August) of the current fiscal year 2018, up 80% from 62kg in the same period of the previous fiscal year.

The demand for gold is surging despite prices remaining largely constant. All Sindh Saraf Jewellers Association reported the price to be Rs52,200 per tola (11.66 grams) on Saturday.

“Gold imports have surged partly due to increased demand and partly due to the possibility of rupee devaluation,” Arif Habib Securities analyst Adnan Agar said, despite Finance Minister Ishaq Dar repeatedly ruling out the possibility of devaluation.

The market, however, remains optimistic about a much-needed adjustment in the rupee against the dollar in a gradual manner. The chances of depreciation may increase if Dar is replaced.

The rupee has started showing signs of a downward revision despite the government’s stance. It lost almost half a percentage point during last week to reach Rs105.41 per US dollar on Thursday, down from Rs104.90 per US dollar on July 4, 2017 in the interbank market, according to the SBP.

The correction comes after a sudden drop of 3.19% on July 5, 2017 when the central bank decided not to intervene in the interbank market.

The International Monetary Fund and independent economists have estimated the Pakistani rupee to be overvalued by up to 20%.

“Investing in gold is a safe bet against rupee depreciation or devaluation,” Agar said.

“People may also invest directly in dollar to take a similar advantage, but some investors are more inclined towards the traditional ‘shining’ asset.”

“Pakistan Mercantile Exchange (PMEX) has played an important role in creating gold-specific investors in Pakistan over a period of time,” he noted, adding that “many investors prefer to take physical delivery of gold against their long-term investment as well.” Gold remains one of the leading commodities at PMEX, Pakistan’s only futures exchange for commodities. The dollar has gained significant strength against other major currencies over a period of time.

Agar said its price is expected to keep on increasing, albeit at a slow pace. “If gold gains value, however, the dollar will start going down,” he said.

All Sindh Saraf Jewellers Association President Haji Haroon Chand said states political instability as the major reason behind increased demand for gold.

“Close to 50 jewellery shops which had closed their businesses due to poor law and order situation in Saraf Bazaar 2008-2013 have resumed business in the last 4-5 years,” he said.

Published in The Express Tribune, September 24th, 2017.


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