As markets waited for clues on the State Bank of Pakistan's interest rate hike trajectory, gold prices increased to a new high on Tuesday, driven higher by concerns over inflation and persistent political risks.

The price of gold increased by Rs. 500 per tola and Rs. 428 per 10 grammes, respectively, according to the All-Pakistan Sarafa Gems and Jewellers Association (APSGJA), to settle at Rs. 187,700 and Rs. 160,922.

According to the group, the price of gold in Pakistan has been "overcost" by Rs6,500 per tola when compared to pricing in Dubai. This indicates that the price of gold in Pakistan is currently higher than it is on the global market.

The change from "under cost" to "above cost" also calls into doubt the long-term viability of Pakistan's bullion price.

The discrepancy between the official price of gold and the price it is being sold for is growing. The official price in the Sarafa market, as announced by the association, is Rs187,700 per tola. But the price at which it is being offered is higher.

Due to the rupee's depreciation against the US dollar during the present cycle, financial experts and goldsmiths predict that the price of gold may increase to Rs200,000 per tola.

They do, however, also think that a $6–$8 billion infusion from international and bilateral creditors will pop Pakistan's price bubble.

As investors got ready for the release of the Federal Reserve's most recent policy minutes, gold prices had a strong start to the new year on the worldwide market, reaching a peak that had not been seen in more than six months. Following an increase of $9 per ounce, the price settles at $1,833.

In the meantime, the price of silver in the nation rose by Rs50 per tola to an all-time high of Rs2,150. Additionally, the cost of 10-gram silver increased by Rs42.86 to Rs1,843.27.

Pakistan's December inflation data were made public a day earlier, and markets have already priced in the possibility that the central bank may increase interest rates by a full 50 to 100 basis points on January 23.

Greater interest rates increase the opportunity cost of owning non-yielding metal, despite the fact that gold is regarded as a safe store of value during times of uncertainty and a hedge against higher inflation.