Plenty of uncertainty across the globe
Uncertainty is worse than bad news. There is plenty of uncertainty across the globe. The investors seem to be dithering whether to invest in gold or dollar as hedging. Sometimes it seems as if the entire world is going to invest in gold and at other times it is other way around. The investment scenario is in a state of flux.
There was a drop of $79 per ounce in the world gold market in 2021. The uncertainty dragged international gold rates down to $1,820 versus $1,899 per ounce at the outset of 2021. Global investment demand for gold witnessed 40% drop during the preceding year. Simultaneously, central banks accumulated 463 metric tons of gold during preceding year which resulted in spike of global gold reserves to around three-decade high. For many, it was inexplicable. The average price of gold was around $1,799 an ounce during preceding year which was almost with the trivial difference vis-à-vis the pandemic-hit 2020. Price of gold in the international market is $1,714 an ounce today. However, the dollar rate is exorbitant across the world today.
Both gold as well as dollar get boost or experience descent from political decisions, to be accurate. In a recent development, imports of Russian gold reckoned to be the second-largest export for Russia has been banned by G7 in the wake of the Russian-Ukraine conflict. Russia is presumed to account for about 5% of all gold exports which comes to be a hefty amount. This decision is deemed to have an impact on gold prices globally since demand may outstrip supply leading to unprecedented soaring prices. Let’s see what transpires a couple of months down the line.
Traditionally, multifarious currencies have in the past been pegged to gold etc. For instance, Russia adopted the gold standard in 1897 which was later abandoned during the First World War as governments printed money. Some analysts opine that Russia might peg the rouble to gold. And some other countries might follow suit. This would have an impact as well.
Gold mining is one of the foremost sources of revenue for numerous countries such as China, Australia, South Africa, Russia, the United States etc. Gold has a substantial value to the economies of the gold producing countries. There is no denying the fact that 15 largest gold-producing countries contributed $78 billion to the world GDP preceding year. Gold is monetary metal as it has historical uses as a currency and is seen as a store of value.
For individual investors, the most common way to invest in physical gold is to purchase gold bullion or gold jewellery. The question is whether in these times of global economic meltdown, investment by individual investors in physical gold is a prudent notion since proper storage and insurance cost may not be as trivial as it used to be in the past. The rates of 10 grams and one tola of gold in Pakistan have soared to Rs124,485 and Rs145,200, respectively by virtue of surge in dollar rate, to be precise. Again, it is unfathomable.
Dollar is sky high vis-à-vis not only Pakistani rupee but also every leading currency right from Europe to North America and Asia. Pakistani currency was rattled since a dollar was traded for Rs 222 on last Tuesday which is unprecedented. The analysts attribute the global surge of dollar to the hike in the US Federal Reserve interest rates which is to combat 40- year inflation in the USA.
Federal Reserve interest rates surge has fascinated the global investors who seem to be flocking to invest in dollar to obtain hefty returns. Where is this going to lead? Would investors shun gold and invest in dollar or would it be contrary in the not-too-distant future? Nothing could be anticipated at this juncture.
Some reckon Russia-Ukraine conflict as the foremost reason to all ills. Others deem it a post-pandemic flabbergasting. There are some who presume the world is in a catch-22 situation and this may last for certain time period. There are some who also opine that the political and acrimonious decisions are the sole cause of the ongoing turmoil in the entire world.
Well, hope for the best but prepare for the worst. No one knows what future holds for us. May God have His mercy up on the entire humanity!