Why does the gold price in Lahore drop when the international price rises? It all comes down to the USD to PKR exchange rate.
The Pricing Formula
The gold rate in Pakistan is calculated using a very simple formula: (International Spot Price in USD per Troy Ounce) × (USD to PKR Exchange Rate) ÷ (Ounce to Tola Conversion Factor). Because of this, the local rate is influenced by two independent variables.
The Currency Effect
Often, the international price of gold will drop, but the price in Pakistan will remain unchanged or even rise. This happens when the Pakistani Rupee depreciates against the Dollar at a faster rate than the gold price falls. Essentially, you are paying more Rupees to buy the same amount of Dollars needed to buy the gold.
Tracking Both Markets
Smart gold investors in Pakistan don't just watch the international bullion market; they closely monitor the interbank and open market Dollar rates.