Gold has always been a powerful commodity. The earliest history of human interaction with gold is long lost to us but its association with gods, immortality, and wealth is common to many cultures throughout the world. Gold was money in ancient Greece; the legendary Greek author, Homer, in the Iliad and Odyssey, mentions gold as the glory of immortals and a sign of wealth. Both Plato and Aristotle wrote about gold and had theories about its origins. Even the Book of Genesis in one verse talks about the "The land of Havilah, where there is gold: and the gold of that land is good."

The historical evidence shows that the first value relationship between gold and silver ratio was started in the first Egyptian Dynasty by 3100 B.C. However, the first use of gold as money occurred around 700 B.C, when Lydian merchants produced the first coins with 63 percent gold during the era of Croesus of Mermnadae, the last king of Lydia (579 - 546 B.C.) in a region now a part of modern Turkey. Today, a wealthy individual is called as being "rich as Croesus".

The ‘value’ of gold has been accepted all over the world since the concept of gold as money; portable, private, and permanent. As early as the Byzantine Empire, gold was used to support ‘fiat’ currencies. Fiat money is government-issued currency; most modern paper currencies are fiat currencies. Gold has been used as the world reserve currency up through most of the 20^th century till it is considered that paper money must be backed up by an equal amount of gold in reserve.

Gold reserves are held by the central bank of a country as a store of value, guarantee of payment to depositors or as a way of securing the currency. The value of a nation’s currency is strongly tied to the value of its imports and exports. When a country imports more than it exports, the value of its currency will decline.

As in Pakistan, demand for gold is interwoven in culture and tradition, and desire for financial protection. Gold, thus, is considered both an investment and ornamentation. Abid Qaiyum Suleri, senior economist, says "a country like Pakistan, being a large importer of gold, will inevitably end up having a weaker currency when the price of gold rises."

According to a report by the World Gold Council, annual data from 1990 to 2015, shows two significant factors affecting gold consumer demand (jewellery, and bar and coin combined) over the long-term. Nevertheless, there are several other factors that have a bearing on it as well. Under normal circumstances, gold and dollar share an inverse relationship.

In Pakistan, the rupee-dollar equation has a role to play in gold rates although it does not impact global gold prices," Suleri elaborates, "gold is largely imported and hence if the rupee weakens against the dollar, gold prices will likely appreciate in rupee terms. Albeit, depreciating currency may dent the demand of gold in the country."

Since international gold is dollar denominated, any weakness in the dollar pushes up gold prices and vice versa. In recent months, gold has seen increase in demand as United States and China have engaged in an escalating series of trade wars. Thus, in the last one year, price of gold has increased from $1,245.90 per ounce ($40.23 per gram) to $1,409.30 per ounce ($45.28 per gram).

Prices of gold and rates of inflation are also intertwined. When inflation rises, the value of currency goes down which pushes gold prices higher. "This is what has been happening with our market since the interim government last year, but especially after July 2018," says Muhammad Ahmed, Chairman Lahore Sarafa and Jewellers Association.

"There is only five-dollar increase per gram since August 2018 in the international market. This means the increase in rupee should have been around 600 per gram. However, just because of the devaluation of our currency, the price of 10 gram gold has increased from fifty thousand to seventy thousand; approximately Rs2000 per gram," he adds.

"Demand for gold is driven by income and price levels. Because of low income and increasing prices, the gold industry has collapsed," Ahmed explains.

"Traditionally, a surge in jewellery demand is observed during the wedding seasons. The demand for gold has reduced by 90 percent in the last ten months or so," says Ahmed.

Suleri believes money-laundering through gold is still a common practice in the subcontinent, and this keeps the gold business buoyant. In addition, people usually want to invest or buy gold to protect themselves from volatility and uncertainty. "Therefore, most investors would still buy gold even when the domestic economy is in recession."

In Pakistan, gold shows no statistically significant correlation with heavy investment in gold assets since 2003. Dilawar Ali, General Secretary Gold and Gems Council Pakistan, tells TNS the boom in property business during General Pervez Musharraf’s era has severely damaged the gold industry."Now, the continuous devaluation of rupee is deterring investors from investing in this industry."

On the other hand, the World Gold Council report states that global gold mine production has averaged roughly 2,600 tonnes that is 1,000 tonnes less than the demand. Nowadays, countries are trying to keep supplies of gold on hand as it is able to retain value much better than other forms of currency.

The top ten countries with largest gold reserves in tonnes are USA (8133.5), Germany (3381), Italy (2451.8), France (2435.9), China (1864.3), Russia (1778.9), Switzerland (1040), Japan (765.2), Netherlands (612.5), and India (557.7). Pakistan has 64.60 tonnes of gold reserves equal to $2.691 billion.

According to the report, with no new mining capacity coming through, most of the gold is being recycled. Therefore, low supplies are another factor for changes in gold rates.

Waiting for buyers

Enum Naseer

My Careem driver, Mohammad Ali, is new to the business. He takes extra care to ensure that my car ride is comfortable. It is a long commute back home from Davis Road and he decides to break the ice.

"It is good that I know how to drive, and I drive well; but actually I am a businessman," he chuckles.

"I used to have two jewellery stores: One in Cantt Saddar, and the other one, in Bhaghbanpura. I only managed to keep the one in Bhaghbanpura. Things are really bad for those in the gold business," he explains. Ali further elaborates how inflation and the new tax regime have affected buying trends.

"It used to be common practice for customers to give orders for things like nose-rings, lockets, and small earrings. Everyone could manage to have some kind of gold jewellery depending on what they could afford," he recounts.

In the past eleven months, he adds, a typical work day involves "swatting flies", and the "occasional customer placing a demand for light bridal jewellery". The latter he qualifies, happens close to the wedding season.

"This is also impacting the trust between shop owners and goldsmiths, especially now that people will do whatever they can to survive. While I understand this, I am anxious each time I hand over gold for some jewellery article to be made," he notes.

"I am driving this car but I will be participating in the shutter-down strike against the new tax regime on July 13," he says quietly as he drops me off.