Gold beyond reach of the commonman

Apr 10 - 16, 2006

Gold prices must have surprised the consumers last Thursday when with an increase of Rs 200, per ten grams of gold touched Rs 11,501. The prices in the international market were as high as $ 597.90 an ounce. Off course, our local market gets affected because of the international market. If you ask the reasons for the hike in gold prices, the answer will be based on various reasons: economic prosperity of China and India where the consumer purchasing power has strengthened so the citizens are purchasing gold, keen interest for the investment in the commodity by the Japanese investors particularly after the Tokyo stock market collapse in the third week of January this year, surging international oil prices, geopolitical uncertainty, rising inflation etc.

It was predicted last year that the average yellow metal prices will be $ 525 an ounce and $ 550 an ounce in 2006 and 2007 respectively. This prediction might prove wrong since the present situation speaks volumes for hefty investment in the yellow metal which might help the prices of the metal skyrocket as high as $ 1000 per ounce crossing all time high prices of 1981 when the metal was being sold for $ 850 per ounce after the Afghan invasion by the USSR.

Prices of yellow metal have risen by over 40% in last three years in the international market. In the second quarter of 2003, the prices of the metal were $320 per ounce and during the same year the prices soared to over $400 per ounce. But in December last year, the yellow metal overwhelmed the public across the world when the news of high demand and short supply became the cause of high gold prices across the globe. According to Bloomberg, gold touched $ 500 an ounce during the month which was all time high prices in 20 years. By January this year the prices surged up to $565 per ounce. It was during last week that gold prices brought good and bad news both for the investors and the consumers. Let me tell you the local rates since the beginning of the current year. Before Eid-ul-Fitr, prices per ten grams were Rs10, 415. On 14th of January prices went up and ten grams of gold was sold for Rs10, 715. Per ten gram prices on 8th of February rose to Rs11, 142. Prices came down to Rs10, 598 per ten grams on 16th of February. On 22nd of February again a rise was witnessed when per ten grams were sold for Rs10, 791. After that Rs10, 834 and Rs10, 937 were the prices per ten grams on 27th of February and 01st of March respectively. As mentioned earlier, per ten grams prices rose to Rs 11,501 last week bringing misery to the consumers.

When there is escalation in prices, naturally consumers endeavour to spend less. It has also happened in terms of the purchase of gold ornaments. According to a retailer the escalating prices have affected the lower middle class citizens of our country. The peak season of the consumer purchase of gold ornaments in our country is from the 4th of Shawal to the end of Zill Haj. Dip season is during Moharam and Safar when the sales go down. The following four months again revive the business. The soaring prices have hit the lower middle class in terms of affordability. According to a retailer, the least quantity purchased by the family of the bride and the groom belonging to the lower middle class is 50 grams of gold for the wedding. Now each family has to spend at least Rs60, 000 which is a huge amount for the consumers belonging to such stratum. When the retailer asked told PAGE that prices had gone up in the international market so the local market had been affected as well. By and large, Pakistan imports gold from Dubai and Singapore so the price escalation in these markets has directly affected our market. A wholesaler was of the opinion that there were no chances that the prices would come down rather he was of the opinion that the upward trend in prices would further move in the same direction. I think this is the thing which has encouraged the investors to diversify their investment and go for the purchase of gold to be safe from the future uncertainty. A lot of investors are buying gold as a hedge against rising inflation as well.

When contacted a wholesaler gave me the following information regarding the prevalent situation and he was of the opinion that the skyrocketing price of gold in the local market were due to the high prices in the London Bullion Market.

According to the bullion dealers, the import of gold was about 30,000 to 40,000 tolas (11.664 grams) per day, but nowadays same quantity is being imported per week. They feared that the gold import was likely to drop further due to the higher price in the UAE.

There are about 17 importers of the yellow metal in Karachi who are now staying away from importing any significant amount of gold. The jewelers are now mostly depending on gold Tezabi, which is extracted from the old jewellery. Middle class and lower class people are compelled to get their old jewellery melted to have new jewellery for their offspring's wedding ceremony.

In Karachi the wholesalers deal in Sarafa Bazaar and the Saddar Market of which Saddar is considered a big market because almost all the exporters belong to the Saddar market.

According to him, the wholesalers of the Saddar market deal with only upper and upper middle class of our society whereas those belonging to the Sarafa Bazar serve all classes of our society. The wholesale market is only based on credit. The credit terms usually span over one week and 15 days. The credit is given only through reference and goodwill of the party but the recent hike in the gold prices has brought somewhat problems to the business.

I got mixed points of views from different people but I can surely say that the soaring yellow metal prices have left an adverse effect on the business and the consumers alike and this is the time that the investors would use gold as a reserve currency. When ornaments are made, silver, an industrial metal, and copper are mixed with gold to bring about beauty and durability. The prices of these two metals have also increased which have brought further surge in ornaments' prices.

One of the major reasons for the surge in the yellow metal prices in a quarter of the century is the ongoing uncertainty in the world over the nuke issues of Iran. Tensions over Iran's nuclear ambitions have helped oil prices soar. Oil prices climbed to 68 dollars per barrel in London on last Thursday which has led adverse effect on the metal prices. Investors now seek to diversify their assets due to many reasons namely the Iranian issue, weak dollar against the euro and geopolitical uncertainty. All this has boosted the confidence of the investors to invest in the yellow metal which has led and will lead to the further upsurge not only in Pakistan but also all over the world creating unforeseen problems for the underprivileged class. Japan is one of the biggest buyers of the commodity where the investors have shifted their attention to the purchase of gold to earn larger profits.

Due to colossal purchase by the investors and the Indian as well the Chinese citizens, an unprecedented shortage has surfaced which has affected our local market as well giving rise to higher gold prices.