in on war
in gold never disappoints”
The wish to earn big bucks without putting in
much effort and thought is common human nature. Equally common is the desire
to minimise risks and cling to whatever one owns. With global economic
slowdown becoming more of a permanent feature and inflation setting in,
worries of financial insecurity overwhelm populations worldwide. Left with
little options to earn and match the rising living costs, individuals are
fast turning to the most trusted metal in human history — gold — to end
their woes. The rules of trade are simple and risks minimum, at least in the
existing conditions. No doubt asset holding in the shape of gold has augured
well for people in the short and the long run.
At the same time, the continuous rise in gold prices has
changed its consumption patterns and made it a commodity more guarded than
exhibited. No more feasible for ornamental use, gold has been replaced to a
great extent by other metals including silver as base material for use in
Wherever there is a lucrative investment option,
Pakistanis are there. One wonders why they opted to hand over money to
Gujrat-based swindler “Double Shah” in anticipation of doubling it when
this option was always available to them. Though a bit late they have got a
direction and pumped billions into gold trade. Experts think one reason
Pakistanis opt for investment in gold is because a major part of our economy
exists in the informal domain and gold is the easiest and most unaccounted
Financial institutions are also banking on the
opportunity and issuing instant loans against gold deposits. At the same
time, they are contesting claims filed by account holders like residents of
Swat whose gold lying in bank lockers was plundered by insurgents. This
week, TNS simply takes stock of the conditions in which gold trade
flourishes and helps readers notice the changing trend through its eyes.
With the decline in GDP, low investment rate and
high inflation rate, the already susceptible national economy is
increasingly at risk, hitting hard the common man.
Given this scenario, local as well as foreign investors
are reluctant to put their money in the real sector, whereas the small
investors prefer to invest more in bullions, preferably in gold or foreign
currencies, instead of local financial institutions obviously because of the
shrinking interest rate as well as the ongoing crisis in the country’s
But why is investment made only in the bullions? The
obvious answer is the ever so dependable prices of gold and silver in the
international market and speculations of further hike in precious metal in
the coming months. Although the gold prices eased in the last quarter of the
calendar year 2011, after touching peaks of $1,900 per ounce in September
2011, the market players predict the yellow metal price may further rise and
touch $2,000 an ounce in the next few months. The current local market price
of gold fluctuates between Rs 56,000 and 57,000 per tola. The upward trend
in prices encourage the speculators with the belief that the local market
price of gold may touch Rs 70,000 per tola in the coming three to four
Local traders claim gold and silver prices in Pakistan
are lower than those in Dubai, particularly after the economic crash in UAE
last year. The investors now prefer putting their money in bullions because
of gold’s secure position, says Haroon Rasheed Chand, President, All Sindh
Upward trend is also witnessed in the prices of silver
which are presently hovering around Rs 1,010 a tola, whereas the market
pundits forecast its prices may touch Rs 2,000 a tola very soon.
Traditionally, gold is considered a safer investment as
against similar investments in immovable assets like properties. Due to its
strong fluid position, gold is preferred more than other modes of investment
due to two main reasons — it is easy to sell or buy and it is
In countries where a large portion of the economy is
undocumented or non-formal investors prefer to save in bullions instead of
properties or equities. Even investment in foreign currencies, preferably US
dollar, is also easily traceable. A large portion of the black economy money
also goes in precious metal instead of the channels where it can be easily
traced for investigation or prosecution purposes.
People buy 10 tola gold coins, which can easily fetch
them a value of Rs 560,000. Besides, it can be kept in safer places very
easily, whereas a 100 tola gold bar can fetch a face value of Rs 56 million.
Keeping gold in home is of course a risky proposition, particularly in the
worsening law and order situation in the country, but Chand does not agree.
“People can easily keep gold or silver coins in the water tanks in their
homes,” he says, adding that traditionally people make jewellery or just
keep 22-karat gold in coins. A silver coin or bar kept in water tanks also
helps to kill germs, he says, jokingly.
Chand considers investment in gold or silver as a much
safer investment in Pakistan. Due to the growing prices of bullion in the
international market, people are attracted. Gold and silver prices are
likely to increase further in near future.”
Chand says two months back when gold prices were
declining he predicted the price of gold per tola would not go below Rs
50,000 and after touching the lowest value at Rs 52,000 a tola. “I can see
the prices reach Rs 65,000-70,000 in three to four months.”
Internationally, bullion prices witnessed a dip after
touching a high in September. However, recently, it has again witnessed an
upward trend due to the increasing international prices. The last quoted
price of gold in the international market was US$ 1,660 per ounce.
Gold has witnessed upward trend in the last three years,
particularly after the economic meltdown in the USA and Europe. On an
average, international gold prices increased by 23.4 percent in 2009,
followed by 27.1 percent in 2010 and 10.1 percent in 2011. The upward trend
was halted in the last quarter of 2011, but within two weeks of the new
year, the global market has witnessed a moderate surge at the rate of 4.1
According to experts, the main reason for increase in
bullion rates is financial crisis in America and Europe. Countries have
gradually lost confidence in the paper currency and gold is emerging as a
reliable source of investment. Moreover, central banks of many countries and
international investment companies prefer to build their assets on gold
instead of dollar whose value is declining. In Pakistan the situation is no
different. Although here, the US dollar is still first priority to build
country’s reserves, the central bank has some portion of reserves in the
bullion form. According to State Bank of Pakistan data, the central bank has
maintained gold reserves worth US$ 3.15 billion against total foreign
exchange reserves of US$ 17.9 billion till last report released on January
Buying gold from jewellers or bullion traders is no more
a single option available for local investors, who trade in bullions for
investment purposes. Investors are also trading gold through Pakistan
Mercantile Exchange (formally known as National Commodity Exchange Ltd.),
where 75 percent of the total trading is done in gold only. Working on the
same pattern of equity market, the other commodities on trade at PMEL are
silver, crude oil, palm oil, rice, sugar, KIBOR (Karachi Interbank Offered
Due to main focus of investors on the bullion, the
investment in gold at the exchange has already increased manifold. “We
have noticed almost four times increase in gold trading over the last one
year,” says Samir Ahmed, Managing Director and Chief Executive of PMEL.
The volumes in gold trade are increasing every month as
200-300 new trading accounts are opened at the exchange across Pakistan,
which shows tremendous interest of public in the yellow metal. The exchange
operates 21 hours a day and all transactions are made through computers
according to international rates.
“We can provide physical delivery of gold, if an
investor wishes to receive coins or bars,” says Sameer.
According to a report of the Exchange, during 2011, the
traded volumes in gold at the PMEL increased to Rs. 581 billion from Rs. 137
billion in the correspondence period of the previous year, registering a
growth of 324 percent. Situation with silver was even more active as during
2011, the traded volumes of silver increased to Rs. 123 billion from Rs.
17.2 billion in the correspondence year, showing a growth of 612 percent.
Silver prices fluctuated between US$ 26.60 – 48.40 per ounce in the year
2011, peaked near $50 in late April. The small investors prefer to trade in
Although upward trend in the exchange rate of the US
dollar has also attracted the attention of investors towards the money
market, the bullion market still dominates the investment scenario of
Pakistan, leaving behind the traditional equity market. Many stock exchange
brokers are also trading in bullion.
Tahir Mahmood Bhatti, an established jeweller
catering to the middle class in the once-too-busy market in Ichhra’s Latif
Plaza in Lahore complains of having issues of hypertension. “It is because
of stress,” he tells TNS, adding that this comes with the territory.
“For the most part, we are getting one customer a week on average.”
Bhatti, approaching 50, is obviously worried for his
ancestral business which seems to take a dip as the price of gold shoots in
Pakistan. This, in a society and a culture where gold literally enjoys the
status of a sacred commodity — one that the women must wear for adornment
and keep as social security. “You cannot imagine a wedding in Pakistan as
well as India without some display of gold ornaments,” he says. But,
people are now being forced to buy artificial or silver jewellery on the
Also the general secretary of the local jewellers’
association, Bhatti terms gold inflation, law-and-order and security issues
as major reasons for the downward trend in the jewellery market. Even in
Soha Bazaar, Punjab’s biggest gold market in Lahore, the shops are largely
deserted. There are glittering gold ornaments on display through the glass
windows of these shops, watched over by armed guards, but there are no
“The economy is going down and so is the buying
capacity of consumers,” says Saeed Afzal, a Lahore-based jeweller with 35
years of experience in the profession. “It is understood that when people
and other businessmen have money they will come to us to order jewellery or
“Presently, the business is down by 70 percent. Prices
started shooting after 2000. It was 10,000 per 10 gram before that.”
The customers who were buying gold jewellery weighing about 100 grams
have now confined themselves to 30 to 40 grams.”
Another trend, Bhatti says, is that most jewellers are
trying to switch business and sell their shops. “A significant number of
jewellers in our market are thinking on these lines, which is worrying for
There is some hustle and bustle seen in the well-off
areas. Top jewellers in, for instance, Lahore’s Liberty and DHA, are in
demand. But, again, that is mostly for the wedding season.
“It is also psychological,” says a successful jeweller in the
Liberty Market. “People now like to keep gold as a future investment and
not necessarily for making jewellery.
“Gold is there in the market but the buying capacity
of the consumer has gone down,” says Asad-ur-Rehman Sheikh, a Lahore-based
jeweller. “The small, downscale markets have been hugely affected but
there is clientele in the big, upscale markets.”
The business catering to the upper class is not without
its share of issues. To quote Sheikh, “Mostly, people ask for remoulding
or investing in gold by buying bullions from the merchants.”
In far-out districts like Sialkot, which lies on the
Indian border, the jewellery makers (karigar) have faced a drastic cut in
their income because of the declining trend in gold jewellery business. As a
local jeweller Muhammad Afzal puts it, “Normally, the upper level of
decline is up to 10 to 15 percent but at the lower level the business is
almost finished. People are switching to silver and artificial or
gold-plated jewellery. On weddings, we receive order of jewellery, which is
obviously a part of a social or cultural obligation. The concept of
presenting jewellery sets as gifts is becoming extinct.
The export of jewellery has also declined significantly
in 2010. The gold export in Pakistan formally started a couple of years ago.
It was worth Rs 900 million in 2009 which came down to 600 million rupees in
2010, according to the figures provided by All Pakistan Gems Merchants and
Jewellers Association (APGM&JA).
According to the figures, there are more than 10,000
jewellers across the country but the limit of registered jewellers with the
association is only 1,200.
Mazhar Ali, Chairman APGM&JA and also a top jeweller
in Karachi, offers some hope: “Despite uncertainty, the trend of selling
gold for whatever needs and investing in pure gold will always be there.
“In Karachi, people are buying pure gold, remoulding
and using it for investment purposes rather than for jewellery purposes.”
Small jewellers in Karachi, however, continue to face
tough times. They are switching to real estate business etc. Workers are
affected, sale of silver and gold-plated jewellery is on the rise in the
market and most jewellers are moving to silver.
“More than 50 percent of clients among the middle
class Karachi have shifted to silver or artificial jewellery,” says Mazhar,
adding that the 20 to 25 percent outlets in the city have already changed
over to silver jewellery.
“People are also asking for a carat variation — the
general trend is 18-carat jewellery.”
Asad foresees a time in the future for Pakistan and India when people
will get gold and diamond jewellery on rent. Presently, England and America
offer jewellery of one’s choice on rent, where jewellery firms also charge
a certain amount per hour.
Never in the history of mankind has gold lost
its appeal or acceptability as the most readily and easily tradable
commodity. There are other venues for investment like real estate, stock
market and foreign currencies but gold has been the safest bet of all.
Over the last decade or so, global economic slowdown has
whisked away small and big-time investors from these sectors to take refuge
in bullion trade.
From a smart investment banker or risk manager to a
simpleton housewife, the rules of game are clear and there are hardly any
technicalities involved. Anyone can simply walk into the shop or office of a
registered gold dealer and acquire required amount of gold against cash or
cheque. Equally simple is the process to dispose of this asset at the
existing price in the market. The transaction money involved is exactly the
same as the value of the commodity traded.
But this is not the only option. There are ways one can
hold larger quantities of gold by investing amounts much less than its
value, says Zeeshan who advises clients on futures trade in the commodity.
Talking to TNS, he says the price and quantity of a commodity in this trade
is decided there and then but the time of delivery and payment is decided
mutually somewhere in the future. The gold, he explains, is not transferred
physically but the ownership remains with the investor for a specific
If the prices rise the investor gains and if they fall
he loses. It’s here the advice of a risk manager matters. He is the person
who speculates what will be the state of affairs in the time to follow and
what is the best time to dispose of the assets, Zeeshan explains. He draws
similarity with investment options in real estate business where one can
either make full payment to buy a plot or house, or can hold it for a
specific period by paying earnest money (beya’ana). If the prices rise in
the meanwhile, the person can sell it at the existing price and make a
Shahid Mehmood, a Lahore-based real estate agent, tells
TNS the money withdrawn from properties has landed in gold trade. He says
expatriate Pakistanis and local investors who would invest money in
free-hold properties in Dubai have now invested in gold. Previously, they
would get their investments doubled in three years’ time besides earning
resident visas for the periods they enjoyed proprietorship of their assets.
But since the UAE property market has lost charm due to economic slowdown,
gold has been the ultimate option, Shahid adds.
The real estate frauds, sale of one property to multiple
users, tedious verification processes, high taxes on property transfers and
corruption in revenue department are other major reasons that deter
investors from venturing here. Transactions in gold are the simplest and
free of such hassles, and hence the choice of all and sundry, he believes.
Investing in gold through mutual funds and commodity
trade and buying stocks in gold mining companies are other options but not
as common as the ones mentioned above.
Gold Art Promotion Council-Pakistan (GAPC-Pakistan)
President Muhammad Ahmad believes the trend of investment in gold is as old
as the history of civilization. People say gifting of gold in dowry is a
waste of resources but he thinks in reality it’s the only prudent
expenditure incurred during weddings. The value of gold has always increased
over time and helped people meet expenses in times of need.
He tells TNS for this very reason jewellery buyers have
become highly sensitive to the use of impurities, however small the
Ahmad says the use of glass and other cheap materials
like artificial pearls in jewellery is a thing of the past and they have
been replaced by real precious stones which are ultra light. In 10 tolas or
120 grams of gold, the weight of stones can hardly be one or two grams.
Similarly, he says, the jewellers are using latest
technology while repairing jewellery. They use a chemical to melt gold and
apply the liquid gold at the point where a stitch or joint is needed. The
chemical later on evaporates leaving only the pure gold as covering, he says
adding this leads to addition in the value of the ornament.
Though owning gold is quite simple its safe storage is a
challenge for many. There are people who store it in their houses and those
also who opt for bank lockers. This does give them a sense of security but
in worse case scenario- like theft, dacoity, arson, demolition of building
etc- creates problem for the locker owners.
Mian Farooq Kashif, vice president of a private
Pakistani bank, tells TNS though lockers are safe banks cannot pay anything
more than the insured value in extreme situations. A locker may hold a piece
of paper or a small heap of gold at a time but how can one establish this,
Such situations hardly arise and that’s why people
have great trust in bank lockers, Kashif concludes.
Gold is considered a highly dependable asset
during a credit crunch, because a lot of banks as well as private
individuals in the country offer loans against ornaments made of precious
For bankers, the trend of getting loans against gold
ornaments is high in Pakistan these days, despite an increase in interest
mark-up — from nine percent to 15.5 percent — in the last four years.
“I receive at least 50 customers a day who want to get
loan against their gold,” says Wajid Ali, a manager at the National Bank
of Pakistan (NBP) in Sialkot district. “It’s only January and I have
already achieved my target. Ours is a very small branch but we’ve already
given loans worth Rs150 million against gold over the last two years.”
According to Ali, the trend has picked up tremendously,
as a result of which “we’ve had to even decline offers to our
It is said that loans against gold (or gold ornaments)
suit most customers looking for personal loans, since there are fixed
interest rates on loans against gold whereas rates on other kinds of
personal loans are not standardised and vary from bank to bank and, also,
from person to person.
Whereas getting a personal loan would depend on a few
factors — the borrower’s income, property, guarantees and the purpose
for which it is being taken — a loan against gold is an easier
proposition. “You can just walk in with gold and the bank will give you a
loan against it the same day,” says Ali. “It is the only form of loan
which can be taken even for a common use.”
Ali also claims that the risk of becoming a defaulter or
of a credit loss is negligible when it comes to a loan against gold.
“There is no risk of being apprehended, since the bank can always auction
gold after a fixed time in case the borrower has failed to repay it, and
adjust the payment.
“But, the bank has hardly to resort to this, as the
prices of gold are on the rise and a loan against every 10 grams of net
contents of gold is also on the rise. Last year, we were offering Rs 25,000
against 10 grams of gold, but this year it has reached Rs 35,000.”
NBP is the only bank in Pakistan that offers loans
against gold. A few other banks like Punjab Provincial Cooperative Bank also
started offering the facility but could not sustain it. “We offer loans
against gold at 15.5 percent rate of mark-up per annum,” he says, adding
that there are no maximum limits of cash and the borrower needs to repay
after one year while weight and quality of gold is determined by the NBP
appointed jewellers,” adds Ali.
“Because we have to give back jewellery to the
customer, once he/she has repaid the loan, in the same condition, we use the
traditional method to check the quality of gold. The bank keeps the gold
until the borrower has paid off the dues. But it is stored in a very secure
way — the ornaments are sealed in a tamper-proof manner in front of the
customer and kept in the bank’s safe deposit.”
War brings disaster, worries and pains. But for
some it may bring windfall gains which they would never have expected. A
large number of bank account holders in Swat stand a chance to make a
fortune and strike gold if luck goes their way.
Just when the valley was centre of insurgency under
Mullah Fazlullah, branches of all major banks were raided by militants who
took away cash, gold and silver ornaments, prize bonds and other valuables
kept in lockers by account holders. Many of these account holders are
demanding compensation according to the existing rate of gold which has
multiplied over the years.
There was no dearth of gold and cash as almost every
household had donated generously to the movement. Then what was the need to
plunder banks? The justification given by the militants and quoted by
witnesses is simple: banks being the faces of un-Islamic economic system
based on riba (interest) and those maintaining accounts there deserved this
treatment. Other targets were the movable and immovable properties of
foreign-funded NGOs and donors, says Zubair Torwali, Executive Director at
Idara Baraye Taleem-o-Taraqi, a welfare organisation based in Bahrain, while
talking to TNS.
The people who lost their belongings due to these events
are demanding compensation, but so far there hasn’t been any significant
development. He hopes the people who braved one of the biggest conflicts in
the country’s history will one day succeed in getting their voice heard.
Zubair Torwali says victims of plundering at banks hold protests from time
The victims have formed an association with the name of
Bank Lockers’ Owners Association Swat. Iqbal Mand, an officer-bearer of
the association, claims the gross value of plundered gold is around 100
million. They have appealed to the government and the central bank, but a
few of them have been given partial claims, he adds.
Raza Khan, an employee at a local bank, tells TNS a
large number of bank account holders have entered into litigation against
banks. The banks are not willing to accept claims as nobody knows what
exactly an account holder is placing in a locker. Similarly, there are
concerns among some account holders that their valuables were removed by the
bank staff and not plundered by the insurgents.
According to Niaz Ahmed Khan, a local journalist and
former office-bearers of Swat Press Club, there are two types of claimants.
“The first ones are those who had hired lockers and had kept gold
ornaments and other valuable there. It is difficult for them to prove their
claims. The other ones with stronger claims are those who had secured loans
from banks against gold deposits.”
As proper evaluation of gold price is done before
releasing loans and record is maintained, there is no conflict over the
quantity of gold deposited with the bank. The real issue is the value, which
has almost tripled over the period, says Niaz Khan adding “They are asking
for today’s price but banks are not ready to bear the losses, declaring
them a casualty of war.”
— S. Irfan Ahmed
The News on Sunday: Do you think gold is a
better option than stock market and other investment tools?
Haji Haroon Rashid Chand: Gold is the most credible mean
of investment. It offers better returns than fixed deposits — which is
evident from the exponential increase in its price over the years.
Presently, stock market and real estate are no more lucrative options, and
investors are pulling out from these markets to invest in other avenues,
with gold being the most credible investment option. Even the stock
investors are turning to gold.
Besides, trading and investing in gold is easy — it
does not involve any paperwork and documentation. All that an investor needs
to do is bring cash and get the bars. And same is for selling.
TNS: What has been the price trend of this commodity in
the last one year and what are the future prospects?
HHRC: The gold market is bound to be bullish. The upward
trend persists, which can be gauged by the fact that per tola price has
increased from Rs53,000 on December 12, 2011 to Rs56,400 on January 18,
In my opinion, gold prices are likely to go up in the
international market. In fact it might touch $1800 per ounce by the end of
However, silver is an even more lucrative investment
option these days because of its cheap rate.
TNS: What are the factors that affect gold prices in the
local market as well as in the international market?
HHRC: In Pakistan, the price has increased manifolds due
to the price rise in international market and the depreciation of rupee. As
far as the international market is concerned, a number of factors ranging
from world politics to high demand are involved.
Primarily, the phenomenal rise in the value of gold has
been a by-product of the global recession as investors are looking for safe
products to place their funds in — thus increasing gold’s demand in
leaps and bounds.
Taking advantage of the time difference between Europe
and Asia, large investment houses and bank treasuries of the US manipulate
the gold market and create artificial fluctuation in its demand, directly
impacting the rates. Also, this commodity has no fix rate pattern: sometimes
responding to higher oil prices and sometimes to weakening greenback. But
one thing is for sure — this investment never disappoints.
TNS: Has there been a change in the behavior of personal
HHRC: With the enormous rise in gold prices, artificial
jewellery markets are witnessing a boom as customers resort to alternative
sources to make up for their needs of ornamentation on weddings, etc.
A significant drop in the gold jewellery sale has been
observed for the past few years. Artificial jewellery has become more
attractive to women.
TNS: What is the status of its import and export?
HHRC: There is not a very largescale import or export of
gold and its jewellery as there are around 500 parties in the country who
export jewellery and bring gold bars in return. Pakistan produces one of the
finest gold jewellery, which is exported to the US, the UAE and Europe. But
the exporters who happen to be jewellers prefer bringing gold bars back home
instead of cash.
TNS: What is the role of the mercantile exchange in
promoting gold trade?
HHRC: There has been some trading of gold bars at the
mercantile exchange but the investors prefer bullion exchange where no
paperwork is required and the commodity is physically delivered to you.
Besides, the rates at the mercantile exchange are a bit higher from the
sarafa market. We deal with huge investors including public figures and they
all are reluctant to go to the exchange.