The remarkable rise in gold prices over the past two years is no longer just a financial fact; it has become a powerful indicator of the depth of uncertainty that has penetrated the global and domestic economic situation.
On international trading floors and local bazaars in Pakistan, gold has once again regained its historic role as the safe haven par excellence. At the start of 2026, international bullion prices crossed the symbolic threshold of $5,000 per ounce, compared to nearly $2,300 in 2023, reflecting an increase of more than 120% in less than three years.
In 2025 alone, gold recorded an extraordinary gain of around 64%, the largest annual rise since the late 1970s. This rally has continued into 2026 as investors, central banks and households exit risky assets and seek protection against geopolitical unrest, currency uncertainty and economic fragility.
What makes this episode particularly significant is that gold’s rise is not driven by a single crisis, but by a convergence of global disruptions that have changed investor psychology. Wars and geopolitical tensions remain central. The protracted conflict between Russia and Ukraine continues to disrupt energy markets and global supply chains, while instability in the Middle East has reignited concerns over oil routes, regional security and broader escalation risks.
Strategic rivalry between great powers has intensified, weakening diplomatic cooperation and increasing military spending around the world. Each of these developments injects uncertainty into the markets. Historically, when geopolitical risks increase, capital shifts away from stocks and currencies toward assets that preserve purchasing power, and gold becomes the primary beneficiary of this shift.
At the same time, the global economy is going through a period of structural tensions. Growth in advanced economies has slowed, debt levels have increased and financial systems remain sensitive to shocks. Although inflation has moderated in some regions, it remains stubborn due to fragmented supply chains, climate-related disruptions to food and energy production, and the economic costs of geopolitical realignments.
Central banks therefore face a complex policy dilemma: excessive tightening risks causing a recession, while too rapid easing can reignite inflation. Markets are increasingly expecting interest rate cuts in the United States and Europe, and when interest rates fall, the opportunity cost of holding non-yielding assets like gold decreases. As bond yields weaken and currencies fluctuate, gold becomes relatively more attractive, strengthening demand from institutional and retail investors.
Another important factor behind the rise in gold is the change in behavior of central banks themselves. Over the past three years, central banks have become some of the largest buyers of gold in the world. Global purchases by central banks have exceeded 1,000 tonnes per year, the largest accumulation in decades.
This shift reflects deeper strategic concerns about overreliance on the U.S. dollar, exposure to sanctions, and geopolitical fragmentation of the international financial system. Emerging economies in particular are diversifying their reserves to reduce their vulnerability to external shocks. As official demand increases alongside private investment through gold-backed exchange-traded funds, the global balance between supply and demand tightens, putting sustained upward pressure on prices.
Business disruption and economic nationalism have also reshaped investor expectations. The global trading system is no longer governed solely by efficiency and openness. Tariff disputes, industrial policy interventions, strategic decoupling and reshoring initiatives are redefining the way countries interact economically. These changes weaken confidence in long-term global growth. Investors now view uncertainty as structural rather than temporary.
In such an environment, gold becomes more than a hedge against crisis; it becomes insurance against systemic instability. The metal’s rally therefore does not reflect optimism, but caution regarding the sustainability of the existing world economic order.
These global forces flow directly into the Pakistani gold market, often with amplified intensity. Pakistan is a large bullion price taker, importing global price movements into its domestic economy. When international gold prices rise, local rates adjust almost instantly. However, Pakistan’s macroeconomic vulnerabilities amplify this impact. In recent months, gold prices in Pakistan have crossed unprecedented thresholds. A tola of 24-carat gold has crossed Rs 500,000, up from around Rs 180,000 in 2022 and around Rs 300,000 at the start of 2024. Simply put, the price of gold has almost tripled in three years, transforming what was once a common household asset into an increasingly expensive investment.
Currency depreciation also plays a crucial role in this transmission mechanism. Since the price of gold is expressed in US dollars globally, any weakening of the Pakistani rupee immediately increases its local cost. Pakistan’s rupee remains under pressure due to external debt servicing, trade deficits, limited foreign exchange reserves and dependence on external financing. Even when global gold prices take a temporary pause, the rupee’s volatility ensures that domestic prices continue to rise. Pakistani consumers are therefore experiencing a double shock: a rise in global prices combined with a fragile local currency.
The implications extend beyond the gold market itself. The rise in the price of gold influences savings behavior, portfolio allocation and even inflation expectations. If households increasingly place their wealth in gold rather than productive sectors such as business investment, manufacturing or capital markets, long-term growth could weaken.
Capital that could finance innovation and employment finds itself stuck in idle assets. At the same time, rising gold prices could encourage speculative trading, informal hoarding and distortions in household financial planning. Policymakers therefore face the challenge of restoring confidence in financial stability so that demand for gold reflects choice rather than fear.
There are also implications for Pakistan’s external sector. Rising gold prices increase the value of imports, which could widen the trade deficit if demand remains strong. At a time when Pakistan already faces external financing constraints, any additional pressure on the balance of payments becomes costly. Additionally, gold price volatility can feed back into expectations about monetary stability, thereby influencing broader perceptions of economic health.
Going forward, gold’s trajectory will depend on both global and domestic developments. Internationally, if geopolitical tensions persist, trade fragmentation increases, and monetary policy remains uncertain, gold will likely remain elevated. Some global forecasts already suggest prices could reach $6,000 an ounce if conflicts worsen or financial conditions deteriorate further. At the domestic level, any further depreciation of the rupee, resurgence of inflation or weakening growth prospects would translate these global pressures into even higher local prices in Pakistan.
But the rise in gold should also be interpreted as a warning signal. It reflects a world in which investors prioritize security over productivity, protection over expansion. For Pakistan, the glare of rising gold prices masks deeper structural challenges related to monetary stability, inflation management, export competitiveness and investor confidence. Gold may shine in the markets, but its shine reflects prudence rather than comfort.
Ultimately, the surge in gold prices reveals a larger story about the global economy and Pakistan’s place in it. It’s a story shaped by geopolitical friction, fragile growth, nervous investors and households seeking stability in a time of uncertainty.
In Pakistan, the rising value of gold symbolizes both protection and pressure, protection for savers, pressure for consumers and policy makers. Until global tensions ease and domestic fundamentals strengthen, gold will remain not just a commodity, but a mirror of the risks shaping international finance and Pakistan’s economic future.
The author is affiliated with the Sustainable Development Policy Institute (SDPI), Islamabad and holds a PhD in applied economics. He can be reached at: [email protected]. The opinions expressed are solely his own and do not necessarily reflect the position of the institute.
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the editorial policies of PK Press Club.tv.
Originally published in The News
