Gold price hits new record high in Pakistan on stronger inflation-hedge appeal

• Gold price settles at Rs187,700 per tola.
• Price of gold has been “overcost” by Rs6,500 per tola in Pakistan.
• Silver price touches new peak after Rs50 hike.

Gold prices climbed to a new peak on Tuesday, supported by inflation worries and lingering political risks, as markets awaited cues on the State Bank of Pakistan’s interest rate hike trajectory.

According to All-Pakistan Sarafa Gems and Jewellers Association (APSGJA) reported the price of gold soared by Rs500 per tola and Rs428 per 10 grams to settle at Rs187,700 and Rs160,922.

The association reported that the price of gold has been “overcost” by Rs6,500 per tola in Pakistan, as compared to prices in Dubai. This means that, at present, the Pakistani gold market is more expensive than the world market.

The shift from "under cost" to "over cost" also raises questions about the sustainability of the bullion price in Pakistan.

The difference between gold’s official price and the price at which it is being sold is widening. The association has announced the official price at Rs187,700 per tola in the Sarafa market. It is, however, being sold at a higher price.

Financial pundits and goldsmiths anticipate that the price of gold may rise to Rs200,000 per tola due to the rupee devaluation against the US dollar under the current cycle.

However, they also believe that an inflow of $6-8 billion from multilateral and bilateral creditors will burst the pricing bubble in Pakistan.

In the international market gold prices made a positive start to the new year, with prices touching a more than six-month peak as investors positioned for the Federal Reserve's latest policy minutes. The price settles at $1,833 after a rise of $9 per ounce.

Meanwhile, silver rates also increased by Rs50 per tola to reach an all-time high of Rs2,150 in the country. The price of 10-gram silver also rose by Rs42.86 to Rs1,843.27.

Pakistan’s inflation figures for December were released a day earlier, with markets now pricing in a chance the central bank might hike interest rates by a full 50-100 basis points on January 23.

Although gold is considered a hedge against higher inflation and a safe store of value in times of uncertainty, higher interest rates raise the opportunity cost of holding non-yielding bullion.