Pakistan must add Gold Backed Funds

Pakistan’s financial regulators often speak of diversification, innovation, and deepening of markets — yet these ambitions rarely translate into actionable reforms. One opportunity stands out, both practical and low-risk, and yet remains untouched - the introduction of gold-backed funds. With the State Bank of Pakistan (SBP) holding nearly 50 tons of gold in its reserves, the country is well-positioned to convert a fraction of its dormant assets into market-enabling financial instruments.

Global central banks have already moved in this direction. In dozens of jurisdictions, gold is no longer treated as a static reserve item but as a strategic financial asset supporting exchange-traded funds (ETFs) and structured investment products. Pakistan, in contrast, keeps its bullion locked away — valuable, but economically inactive. This conservative mindset needs a calibrated rethink.

The proposal is simple and regulator-friendly. State Bank of Pakistan (SBP) should release 100 kilograms of gold through the Pakistan Mercantile Exchange (PMEX), specifically targeting the creation of gold-backed ETFs. The quantity is symbolic when compared to total reserves; it carries no threat to reserve adequacy. But its impact on market depth, investor confidence, and product diversity would be significant. SBP-verified bullion sold through PMEX would enhance transparency, improve price discovery, and finally allow Pakistan to list a credible gold-backed fund in its financial ecosystem.

Once the ETF market is seeded, SBP should gradually import around 150 kilograms of gold, timed with favorable global prices. This ensures reserves are not only restored but increased, allowing for future expansion of gold-based investment products. The goal is to create a sustainable, market-driven cycle — not a one-off intervention.

For regulators, the benefits are clear. Gold-backed funds broaden the investment menu in a market dominated by government securities. They attract new investor segments, document savings that would otherwise sit in unreported physical gold, and add liquidity to PMEX. More importantly, they align Pakistan with global best practices, where commodity-based financial products are now standard tools for stabilizing markets.

The concern that releasing central-bank gold might destabilize reserves is misplaced. A 100-kilogram sale out of a 50-ton stock is hardly a depletion; it is prudent activation of an underutilized asset. Paired with a planned replenishment strategy, the initiative strengthens rather than weakens Pakistan’s reserve position.

Pakistan’s financial system suffers from chronic concentration, limited innovation, and excessive reliance on debt instruments. Gold-backed funds offer a low-risk, high-credibility avenue for reform — one that regulators can implement without disrupting monetary policy or fiscal planning.

It is time to stop treating gold as an untouchable relic of reserve management. If Pakistan truly wants deeper, more diversified capital markets, then adding gold-backed funds is no longer optional — it is need of the time.