Switzerland is likely to
follow the suit which might result a slump in gold market worldwide
By Syed M. Aslam
August 9 - 15, 1999
The UK Treasury, on May 7, announced plans to sell 415 tonnes of
Britains gold reserve in phases over next several years. As per announcement, the
Bank of England, on July 6, auctioned the first 25 tonnes of gold. Now under the
programme, similar quantities will be sold in September and November this year and January
and March next year. Detailed plans for auction in 2000-01 and beyond will be announced
later but the arrangements are likely to be similar to the earlier auctions.
UK plans to auction approximately 60 per cent of its total gold
reserves which stood at 715 tonnes at end April this year. The auction has sent ripples in
the bullion markets across the world as prices dipped to record twenty-year low. Gold
prices in Pakistan have dropped by Rs 250 per tola (11.54 grams) since the UK gold
auction. On Thursday, August 5 it stood at Rs 5,270 per tola, Rs 30 lower than the price
of previous day.
The substantial reduction in price, however, has not benefitted the
jewellers in Pakistan. In fact, they agree that reduction of gold prices globally has a
diametrically oppposite effect of the sales.
Talking to PAGE, former chairman of All Pakistan Gems and Jewellers
Association, Mahmood Choksy said, "Potential buyers are expecting that the
international gold prices would drop further. It seems as if the potential customers are
holding on to their money for better prices sometime in future."
He expressed concerns that the impact of low gold prices worldwide
would not augur well for the gold market in Pakistan. "The more the reduction in gold
prices the more the buyers, particularly those who buy gold for investment purposes, will
lose their interest in buying the precious metal," he said.
In developed economies like Britain, the low gold prices have the
potential to boost gold and jewellery sales but for a market such as Pakistan it is having
a totally opposite effect. This is primarily due to big difference in the purchasing power
of a customer in a developed and developing country.
The impact of gold sales by the UK, expected to be followed by
Switzerland, will change the general perception about gold as a major form of investment
in Pakistan. The reduction in global gold prices and the declining prices will change the
trend about investment in the precious commodity causing loss to many investors.
He said that the auctioning of huge quantity of gold by the UK has
changed the face of the gold business, particularly in Pakistan. Previously the gold
prices always subjected to fluctuations which offered solace to the buyers that they would
be able to sell gold to jewellery at a profit. Today people have no such assurance that
todays low would be replaced by a high tomorrow. This lack of confidence will hurt
gold sales as a form of investment in Pakistan.
The purchase of gold jewellery in Pakistan, even if it is given as
dowry to a girl on her marriage by the parents, however, is a fact that no marriage is
considered complete without gold jewellery. With the changing trend the gold is feared to
lose its value as a major investment item, Mahmood added.
Abdul Wahah, a jeweller in Hydri Market, told PAGE that the low gold
prices have failed to register any response on the overall sales. He felt that declining
prices would not have any beneficial impact in the Pakistani market primarily due to
political uncertainty and decreasing purchasing power. People still buy gold jewellery but
over the years there has been a tendency to go for lighter ornaments to suit the budget.
Fifteen years ago, people used to buy much heavier gold sets for weddings but today the
majority go for much lighter sets, he added.
The Chairman of South African Gold Mining Company, Anglogold, which is
the worlds largest gold producer, Nicky Oppenheimer has blamed that UK gold auction
would cause a serious loss to the global gold market. There are speculations that after
the UK gold auction more central banks worldwide would follow the suit and sell their gold
The speculation seems to be true as the IMF, backed by the US treasury,
also wants to sells 10 million ounce of its total gold holdings of 103 million ounce over
several years to help relieve the debt of 41 of the worlds poorest countries. The
proposal has moved a number of US lawmakers to block the gold sales by the IMF. The World
Gold Council has also taken its case to the United Nations on the plea that it would put
scores of poor nations in Africa, for instance Ghana, further in debt.
The decision to auction 415 tonnes of gold by the UK has already helped
push gold to a twenty-year low of $ 252.80 an ounce in the third week of July. Gold has
slumped from $ 291 an ounce at the beginning of this year and lost around $ 35 or 12 per
cent since the Bank of England announced the gold sales plan in early May. The gold price
in the UK is the lowest since May 15, 1979.
Despite strong verbal opposition by the gold producing countries and
World Gold Council, the marketing arm of a number of world gold miners, UK has said that
it has no plans to alter sales of its gold reserves.
Farooq Qureshi, the general secretary of Karachi Saraf [bullion] and
Jewellers Group, blamed the economic scenario which has divided the people into two basic
classes, the rich and poor. In practice there is no more a middle-class to fuel the
economy, he added.