In Pakistan, gold prices surged ahead of the monetary policy committee meeting on Monday, when the central bank is expected to adopt a hawkish approach to rein in spiralling inflation, as demand for the metal remained strong in the north amid a vanishing US dollar and a weakening rupee.

The bullion price jumped by Rs 1,200 per tola and Rs 1,029 per 10 grammes to close at Rs 187,200 per tola and Rs 160,494 per 10 grammes, respectively, according to data supplied by the All-Pakistan Sarafa Gems and Jewellers Association (APSGJA).

Although gold is often used as an inflation hedge, it is quite vulnerable to monetary tightening, which raises the opportunity cost of owning the bullion, which is typically a non-yielding asset like other precious metals. In other words, a precious metal investment cannot be "put to use" to try to make a profit.

According to the jewellers association, gold in the local market continued to be "undercost" by Rs3,000 a tola when compared to the Dubai market, maintaining its Friday trend.

Dealers claimed it was difficult to determine whether the potential increase in the policy rate of 100–200 basis points (BPS) had been factored into the price of yellow metal.

According to a research report from Pearl Securities, the State Bank of Pakistan (SBP) may raise the policy rate by 100 to 200 basis points to reduce ongoing inflationary pressures.

Monday, January 23, 2023 is set aside for the SBP's Monetary Policy Committee (MPC) meeting.

To combat persisting inflationary pressures in the economy, "we expect the SBP to continue to pursue monetary tightening by raising the policy rate by 100-200bps to 17-18%," the brokerage said.

As headline inflation grew despite a reduction in expected GDP growth to 2% for FY23, the MPC organised its previous meeting on November 28, 2022, at which time the committee raised the policy rate by 100 basis points to 16%. Even after a large reduction in the current account deficit due to a dramatic drop in imports, problems with the external balance persisted.

It should be noted that Pakistan imports practically all of the gold it needs, and local traders fix their prices in accordance with worldwide market rates. The metal is imported by jewellers, who first exchange its value into US dollars and UAE dirhams.

The majority of customers in the local market are investors who, in the past, have secured their money in US dollars to protect against the effects of a falling local currency amid rising inflationary pressures.

The precious metal saw a drop during the first three sessions of the week, but then it regained its lustre. Gold prices remained erratic throughout the week. The price increased by Rs2,000 over the turbulent seven-day period that ended on January 14.

According to market rumours, investors have begun switching to the bullion market as a result of the dollar's shortage on the open market. In contrast to the interbank market, where unauthorised dealers were selling the dollar for Rs229, the black market was offering it for Rs290-300.

Silver's price remained constant at Rs. 2,080 per tola and Rs. 1,783.26 for ten.