So the gold price is almost at Rs. 150,000 a tola. A record high in itself. Just a year and half back, the price had breached the Rs. 100,000 per tola mark. So, why has gold surged by almost 50% since then? This increase has been driven by several global factors, and it’s impacting us here in Nepal in many ways. 

Let’s dive into why this is happening and what it means for our economy and daily lives.

Why Are Gold Prices Soaring?

Globally, gold is seen as a safe haven, especially during times of economic uncertainty. Recently, geopolitical tensions like the Russia-Ukraine conflict and trade wars have pushed investors towards gold. Inflation is also a big factor. In 2023, the U.S. saw inflation rates rise over 5%, leading people to buy more gold as a hedge against currency devaluation.

Low interest rates are another reason. When rates are low, holding gold, which doesn’t pay interest, becomes more attractive. Central banks, particularly in China, Russia, and India, have increased their gold reserves, buying 650 tonnes in 2023 alone. This increase in demand is pushing prices higher​​.

How Does This Affect Nepal?

In Nepal, rising gold prices have a direct impact on our economy:

1. Economic Impact: The cost of importing gold is increasing, which affects our trade balance and foreign currency reserves. In 2023/24, our trade deficit was NPR 23.5 billion. With gold being a major import, higher prices mean more pressure on our economy​.
2. Consumer Demand: Despite the high prices, gold remains essential for cultural and religious practices in Nepal. We import about 2,783.5 kg of gold annually to meet demand for weddings and festivals. So, while prices rise, demand doesn’t fall as much as you might expect​.
3. Investment Trends: In Nepal, gold isn’t as popular an investment as real estate or stocks. However, it's a reliable store of value for long-term investors. The lack of structured products like sovereign gold bonds limits more strategic investments in gold.

Navigating the Challenges

Nepal imposes strict controls on gold imports to manage foreign reserves. The Nepal Rastra Bank allows only 20 kg of gold imports per day, and only through licensed commercial banks. This helps regulate supply and control illegal trading​​. But then illegal gold smuggling is quite rampant.

The Federation of Nepal Gold and Silver Dealers Association oversees the distribution, ensuring fair pricing and availability. But retail markups can be high, making it hard for consumers to benefit from price surges. Yes, consumers can only buy gold in the form of jewelry which has around 12-18% of markup added for cost of making and process loss. So, even if you bought gold at Rs. 100,000 a tola a year and half back, you would be barely making some profit even with a 50% increase in the market price. So, to actually benefit from the price surge or appreciation in gold value, one has to wait for years and the return may not be as attractive as evident from the market price rise. 

Learning from India

India, one of the largest gold consumers, has introduced sovereign gold bonds, offering interest and avoiding the need for physical storage. Nepal could adopt similar measures to provide more investment options and boost the economy.

The rise in gold prices presents both challenges and opportunities for Nepal. While it can strain our economy, it also highlights the need for better investment products and strategies. By adopting best practices from around the world, we can turn these challenges into opportunities for growth and stability.

What do you think about the future of gold in Nepal? Share your thoughts and let’s discuss how we can make the most of these trends for our economy and ourselves!