The Impact of Global Gold Price Volatility on Exchange Rate Fluctuations and Inflation in Pakistan (20152024)

Abstract

In this study, global gold price volatility and its impact on the exchange rate and consumer price inflation in Pakistan has been investigated for annual data over the period of 20152024. The findings reveal that all the three variables global gold prices, PKR/USD exchange rate, and consumer price index (CPI) are significantly related to each other and that the higher the global gold prices, the faster the depreciation in the PKR rate and the more the widening of current account deficit (CAD), the two indicators of economic stability. There is a clear long run relationship between gold prices and inflation, but a relatively modest short run impact on inflation due to the influence of many factors on prices at the same time. Higher gold prices are a warning sign for policy makers in terms of exchange rate pressures, and may indicate the need for proactive foreign exchange reserves management (State Bank of Pakistan, 2023; Khan et al., 2023).