Crackdown, rising rupee take sparkle off gold prices

KARACHI: A combination of a government crackdown on speculators, a stronger rupee and a fall in global market rates has resulted in a notable drop of around Rs20,000 per tola in the domestic 24-karat gold rates over the past 25 days.

However, with All Pakistan Gem and Jewellers Association (APGJA) halting its daily rate announcements on Sept 13, traders have been quoting prices at whim. The association’s president, Haji Haroon Rasheed Chand, has given several dates when these daily rates announcement will be resumed. Most recently, he slated Oct 9 as the new commencement date.

On Saturday, the 24k gold price ranged between Rs194,000 and Rs196,000 per tola (11.7 grams), based on the global market rate of $1,832 per ounce. This is a significant decrease from the Rs215,000 per tola on Sept 12, when the world market rate stood at $1,911 per ounce.

Saturday’s gold rates stood in even starker contrast when compared to its price in the second week of May, when it hit a historic high of Rs240,000 per tola, with global prices at $2,031 per ounce and the dollar trading at around Rs288.

Falling global rates also impact domestic market; per-tola price tanks Rs20,000 in 25 days

As of Oct 6, the dollar’s exchange rate was Rs282.75, a decrease from Rs299.75 on Sept 12 and its peak of Rs307 on Sept 5.

Gold shops have worn a deserted look since the law enforcement agencies briefly detained five gold traders in a crackdown against speculators and smugglers. They were later released on assurances by Mr Chand, the APGJA president.

He also assured the law enforcement officials of promoting legal trade, encouraging documentation and computerisation of trade, bringing physical trading instead of speculative, weekly transactions and issuing daily market rate updates. However, these changes are yet to be seen in the market.

Despite a drop in gold rates, customers are struggling to find small gold bars. Mohammad Aslam, a resident from Karachi’s Saddar town, voiced his difficulties finding 10 grams or one-tola gold bars for his granddaughter’s birthday gift. He said retailers were instead pushing jewellery sales, citing a shortage of gold bars in the market.

Mr Aslam suspected that traders had dumped gold bars to make a windfall later when domestic rates go up due to rising global prices or other factors.

However, jewellers insisted that the smaller gold bars were short because purchasers, particularly those who previously bought at higher rates, were now reluctant to sell due to the falling prices. They said investors had adopted a wait-and-see approach following the recent crackdown, the rupee’s rise and declining gold prices.

Topline Securities CEO Mohammed Sohail observed that speculators were swiftly converting their dollars and gold holdings into cash due to the crackdown and the ample dollar supply in the open market. This, combined with the falling world gold rates, has impacted domestic prices.

Mohammad Arshad, chairman of the All Pakistan Jewellers Manufacturers Association, said the current drop in gold prices might encourage genuine buyers and middle-income families to buy jewellery sets during the ongoing peak wedding season, especially when investors are watching from the sidelines after the government crackdown.

Previously, rising gold prices, inflated power bills and soaring food prices had hit jewellery sales, forcing many to limit their purchases to low-weight sets. Some people even resorted to selling small gold items to pay power bills.