The 24-carat gold prices hit 25-year high to close at $729 per ounce in the international market and reached Rs 14,400 per 10-gram in the domestic market on Friday on the back of rising international gold prices.
Increased genuine demand, heavy speculation, mistrust of investors in dollar and geo-political uncertainty across the globe mainly in the Central Asian region, bullion traders said.
The domestic bullion market remained closed on Friday due to a strike call by the opposition parties, therefore, the 24-carat gold prices will remain Rs 14,400 when it opens on Saturday.
However, gold prices breached the fence of Rs 14,000 per 10-gram on Thursday evening to reach Rs 14,228 per 10-gram after registering an increase of Rs 373 per 10-gram in just one day.
The international gold was quoted at $724 per ounce at the end of the trading session on Thursday evening as compared to $708 per ounce on Thursday morning, depicting an upward escalation of $16 per ounce in just one day.
"In fact, the prices of this precious yellow metal (gold) has a direct and positive co-relation with the oil prices," Economist at the KASB Securities Muzzammil Aslam said, while commenting on the skyrocketing gold prices.
"Whenever oil prices surge internationally, the import bill of big economies such as the United States increases, besides widening of trade and current account deficits and the situation compels the country to increase borrowing," he said.
"Consequently, the inflationary expectations rises and interest rates hikes just to slowdown the demand and reduce deficits," he added.
Muzzammil also said that when the interest rates climbs, the currency of that country weakens and then the masses start buying metals for safe havens.
Commenting on the rising genuine demand of gold internationally, the economist said, "The genuine demand of gold is rising steadily, not aggressively, because it has no industrial use."
Analysts said that correction could be seen in the international gold market in the coming days, however, they believed that gold fundamental indicates that the prices would further escalate in near future as well.
"If the ongoing geo-political uncertainty in the Central Asian region further looms, then no one could stop this yellow metal prices to cross $850 per ounce very soon," the analysts said.
They said that the ongoing confrontation with Iran is getting serious and this could be more intensified in the coming days and the next step may be imposition of sanctions.
"This (confrontation) could lead to massive surge in oil prices, however, the magnitude of increase is difficult to predict, but in such a case oil could easily go above $100 per barrel," the analysts said.
Gold traders informed that imports have shrunk to 10,000 Tola per day as compared to 50,000 Tola some nine months back.
The prices of one Tola gold is now being tagged at Rs 16,600 and jewellers said that the people have almost stopped buying gold.