Editorial
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.

overview
Gold and opportunity

The upward trend in the price of gold encourages the speculators with the belief that its local market may touch Rs 70,000 per tola in the next three to four months
By Shujauddin Qureshi
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 equity market.  

Cashing in on war
Account holders in Swat eye benefits of surge in international gold prices
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.  

“Investment in gold never disappoints”
— Haji Haroon Rashid Chand, President,
All Pakistan Supreme Council Jewellers Association
By Javed Mirza
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.


Editorial

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 jewellery.

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 for avenue.

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 equity market.

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 months.

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 Saraf Association.

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 undocumented.

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 percent.

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 6, 2012.

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 Rate).

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 silver.

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 side.

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 customers.

“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 buy gold.

“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 us.”

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.

[email protected]

 

investment
Your best bet
A look into the many ways one can trade in gold
By Shahzada Irfan Ahmed

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 period.

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 profit.

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 proportion is.

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, he questions.

Such situations hardly arise and that’s why people have great trust in bank lockers, Kashif concludes.

 

Bullions into billions
A loan against gold suits most customers, and how
By Aoun Sahi

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 metals.

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 customers.”

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.”

 

Cashing in on war
Account holders in Swat eye benefits of surge in international gold prices

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 to 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

 

“Investment in gold never disappoints”
— Haji Haroon Rashid Chand, President,
All Pakistan Supreme Council Jewellers Association
By Javed Mirza

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, 2012.

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 this quarter.

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 use buyers?

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.

 

 


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