Gold hits five-month high on escalating global tensions

Gains Rs1,350 to Rs89,650 per tola, takes cue from world market

Salman Siddiqui January 04, 2020
The current gold price in Pakistan is just Rs450 shy of the all-time peak of Rs90,000 hit in August 2019, the All Sindh Saraf and Jewellers Association reported. PHOTO: FILE

KARACHI: Gold once again came into the limelight on Friday as it soared Rs1,350 per tola (11.66 grams) to a five-month high of Rs89,650 after global investors took refuge in the precious metal - considered a safe haven - due to escalation in tensions in the Middle East.

"A surge in gold price came in Pakistan in the wake of a significant rise of $29 per ounce (31.10 grams) to a five-month high at $1,551 in world markets," reported All Sindh Saraf and Jewellers Association (ASSJA).

"Gold price shot up following the US air strike in Baghdad that killed a top Iranian military commander," said ASSJA President Haji Haroon Rashid Chand while talking to The Express Tribune.

"Next two days - Saturday and Sunday - will be crucial for gold. The world will observe Iranian moves over the two days when the global commodity markets will be closed for the weekend," commodities analyst Adnan Agar said.

Gold hits new all-time high at Rs87,350 per tola

"Gold may touch multiyear peaks of over $1,600 and $1,700 an ounce in the coming days and weeks if tension escalates - if Iran is not restrained in the aftermath of backdoor diplomacy and strikes back on US military bases in the region," said Agar, who was associated earlier with Rays Commodities.

The precious metal hit an all-time high above $1,900 an ounce in the international market in August 2011.

"The current gold price in Pakistan is just Rs450 shy of the all-time peak of Rs90,000 hit in August 2019," the association reported.

Pakistan is a relatively small gold market. It does not produce the precious metal and completely bank on imports.

The jewellers' association announces gold prices at around four in the evening every day for the next 24 hours. It takes cue from the London market.

Any increase and decrease in gold demand and prevailing rupee-dollar parity play a pivotal role in determining bullion prices in the country.

"The rupee has remained static just below 155 to a dollar. Therefore, there was no impact of the rupee-dollar parity in the latest gold price revision," Chand said.

Agar was of the view that gold would settle at the price of just above $1,500 an ounce in the next two days in the world market instead of soaring if Iran did not come under intense public pressure to take revenge and exercised restraint.

In any case, however, the outlook for gold remains positive. "Gold will stay above $1,500 an ounce in the short to medium run in 2020," he said.

Agar pointed out that global traders were aggressively shifting investment to gold in the aftermath of two major events - the escalation in Mideast and other political tensions and weakening of global currencies, particularly the US dollar, which sparks inflationary pressure.

Gold price soars to Rs90,000 per tola

Going forward, the geopolitical tensions may also aggravate over the North Korea nuclear arms development issue.

The US dollar has slid against other major currencies over the past four to five months in the international market as the Federal Reserve - the US central bank - has continued to print dollars and pump into the economy to stimulate it.

"The latest episode of printing and pumping money into the US economy may come to an end by the middle of the current month (January). The US has so far injected over $500 billion through currency printing, which has caused the depreciation of the dollar against major world currencies," Agar said.

Published in The Express Tribune, January 4th, 2020.

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