In the past, gold has been a potent commodity. Although we no longer know the details of the first human interactions with gold, numerous civilizations throughout the globe have long associated it with gods, immortality, and riches. In ancient Greece, gold served as currency. Homer, the renowned Greek playwright, cites gold in the Iliad and Odyssey as the splendor of immortals and a symbol of prosperity. Both Plato and Aristotle discussed the history of gold in their writings. Even the Book of Genesis mentions “The country of Havilah, where there is gold: and the gold of that place is excellent” in one of its verses.
According to historical evidence, the earliest gold-to-silver value connection dates back to the first Egyptian Dynasty around 3100 B.C. While Croesus of Mermnadae, the last king of Lydia (579–546 B.C. ), was in power, the first coins containing 63 percent gold were made by Lydian merchants about 700 B.C. in a territory that is now a portion of modern Turkey. A wealthy person is referred to as being “rich as Croesus” nowadays.
Since the idea of gold as movable, private, and lasting money, the “worth” of gold has been acknowledged on a global scale. To underpin “fiat” currencies, gold has been utilized since the Byzantine Empire. Government-issued money is known as “fiat money,” and the majority of contemporary paper money is fiat money. Up to the idea that paper money must be backed up by an equivalent quantity of gold in reserve, gold was utilized as the global reserve currency throughout most of the 20th century.
The central bank of a nation keeps gold reserves as a means of protecting the currency, a guarantee of payment to depositors, and a store of value. A country’s imports and exports have a significant impact on the value of its currency. A nation’s currency will lose value if it imports more than it exports.
Similar to Pakistan, the need for financial security, culture, and tradition all play a role in the demand for gold. As a result, gold is valued as both an investment and a decorative element. Senior economist Abid Qaiyum Suleri claims that since Pakistan imports a lot of gold, “a nation like Pakistan would certainly end up having a weaker currency when the price of gold increases.”
Also, Read: Selling My Gold Coins – Where Can I Find a Gold Coin Purchaser?
An analysis of yearly data from 1990 to 2015 by the World Gold Council reveals two key elements that, over time, have a substantial impact on jewelry sales as well as the combined demand for gold bars and coins. However, several other elements also play a role. The connection between gold and the dollar is often inverse.
As Suleri explains, “gold is mostly imported, so if the rupee declines against the dollar, gold prices would probably increase in rupee terms. However, the rupee-dollar equation does not affect global gold prices in Pakistan. Even yet, the country’s demand for gold may be affected by the declining value of the currency.
Because international gold is dollar-denominated, every decline in the value of the dollar causes an increase in gold prices. As trade tensions between the United States and China have been worse recently, gold has become more and more in demand. As a result, the price of gold grew from $1,245.90 per ounce ($40.23 per gram) to $1,409.30 per ounce ($45.28 per gram) during the last year.
Inflation rates and gold price trends are also linked. As a result of declining currency value brought on by rising inflation, gold prices increase. According to Muhammad Ahmed, chairman of the Lahore Sarafa and Jewellers Association, “this is what has been occurring with our market since the interim administration last year, but notably after July 2018.”
Since August 2018, there has only been a 5% rise in gold rate in Pakistan per gram on the global market. This indicates that the rupee rise per gram should have been roughly 600. However, the price of 10 grams of gold has gone from 50,000 to 70,000, or almost Rs 2,000 per gram, solely as a result of the depreciation of our currency, he continues.
“Income and price levels determine the demand for gold. The gold sector has failed because of poor revenue and rising prices, according to Ahmed.
“Traditionally, the wedding seasons saw an increase in jewelry demand. In the last 10 months or so, the demand for gold has decreased by almost 90%, according to Ahmed.
According to Suleri, money-laundering via gold is still a popular activity on the subcontinent, which supports the gold market. Additionally, individuals often seek to invest in or purchase gold to safeguard themselves against volatility and uncertainty. Therefore, even when the home economy is in recession, the majority of investors will still purchase gold.
Since 2003, there has been no statistically significant association between the price of gold in Pakistan and high gold asset investment. General Secretary of the Gold and Gems Council of Pakistan, Dilawar Ali, tells TNS that the gold sector has been seriously harmed by the rise in real estate under the rule of General Pervez Musharraf. Investors are now staying away from this sector due to the ongoing currency depreciation.
On the other hand, according to the World Gold Council study, the average annual output of gold from mines throughout the world has been around 2,600 tonnes, which is 1,000 tonnes less than the demand. These days, nations want to keep gold on hand since it has a far greater ability to hold its value than other types of money.
USA (8133.5 tonnes), Germany (3381), Italy (2451.8), France (2435.9), China (1864.3), Russia (1778.9), Switzerland (1040), Japan (765.2), Netherlands (612.5), and India are the top ten nations with the highest gold reserves (557.7). Pakistan has gold reserves of 64.60 tonnes, or $2.691 billion.
The majority of the gold is reportedly being recycled since there is no new mining capacity coming online. Low supply is also another factor influencing variations in gold prices.
