All that glisters


This week’s column may feel like you’ve slowed down the gobbledygook disclaimers appearing at the end of ads for financial products but I think I’ve finally figured out where all the womenfolk in Pakistan have disappeared. And it’s not what I was expecting when I originally embarked on solving the Mystery of the Missing Mother (also known as dinner). For those of us who lost our mothers, sisters, daughters, spouses and significant others to the Pakistani soap operas that seem to be so fashionable these days, there comes something new to complain about. Only this new distraction could make you lose a lot more than your temper if you’re not careful. So listen up.

Gold has been mankind’s best friend since ancient times. We’ve used it for currency, in jewellery and in industrial equipment for so long that our obsession can hardly be overstated. But there was a time when the word “gold” would be heard only when say weddings or burglaries were discussed. And then technology comes along and suddenly you find that every Nafees and Yasmin Didi around you has become a gold trader. Overnight.

With the volatility in gold prices, the new breed of speculating lady traders (aka speculaders) seems to be making a decent enough earner out of their new vocation, sometimes even before elevenses. So if you don’t think there is a laptop-wielding female at home as yet, perhaps you need to pay closer attention to what’s happening at home. Or maybe now is the time you should buy her a laptop. And here’s why, or rather, why not.

Simplicity, you will find, is now spelt P-M-E-X. That’s the Pakistan Mercantile Exchange for those of us who haven’t been bombarded by their recent ad blitz. And they are transforming lives – though not always in ways that you might imagine. For disclosure purposes, your favourite columnist does not trade with PMEX nor does he intend to. But there’s something empowering in being able to trade in futures contracts online and make a pretty penny while you’re doing it. Well theoretically, anyways.

The volatility which attracts those of us looking to buy low and sell high can also give unhappy surprises when things don’t quite go according to plan. Much of the problem is that no really one knows at any particular point in time just how much gold is being traded out there, nor in what form or in what locations. Regulated exchanges like PMEX may give you some information on market dynamics but that is only a small part of a very large and opaque picture.

Demand for gold is dispersed around the world with East Asia, the Indian subcontinent and the Middle East accounting for nearly seventy per cent of it. The issue is that a different set of socioeconomic conditions underpins each market and creates a diverse range of factors influencing demand. With rapid demographic and other socioeconomic changes being experienced in many of the key consuming nations, new patterns of demand can be expected on any given day.

With economies around the globe embroiled in financial crises, it’s no wonder that the appeal of gold as a safe haven for investors is inextricably linked to varying economic conditions. All it takes is some problem with the European Central Bank in the morning, inflationary pressure in the UK by afternoon and a dismal US jobs report in the evening for gold prices to fluctuate wildly. In the past, panicked investors would seek comfort by investing in the US dollar, Swiss franc or Euro. But with the state of these economies nowadays, it seems the dollar, franc and euro are actually part of the problem rather than the solution.

Anyone interested in investing in gold needs to recognise that the price of gold is volatile and is subject to long term depressions. During periods of sustained deflation or lack of demand, the falling price of gold can badly trip up a rookie investor. Alternatively, gold prices could rise if the economic problems lead to great currency volatility or inflation. With so many variables to be concerned about, what is any self-respecting speculader to do?

To succeed in the gold trading business, what you will need is exactly what the global gold markets lack – information. Without a complete picture of economic developments around the world, the chances are that your first gold trading session on PMEX may just be your last. Without developing an understanding of what is really driving short-term changes in the price of gold, it’s impossible for even the most astute and disciplined trader to remain in the black.

Since 1942, gold has risen over four thousand per cent and started off this year at roughly 1300 dollars an ounce. Sitting just above 1700 dollars at the time of writing, it is expected that with the Indian gold buying season in full swing, gold prices will be flirting with the 2000 dollar mark before this year is out. Perhaps you too may want to get into the action while the yellow metal is still cheap.

The writer is a consultant on public policy.