Gold continues to set new records

Hits high of Rs105,200 per tola as investors flee to safe-haven asset


Salman Siddiqui July 02, 2020
Gold prices rose to their highest in nearly eight years on Wednesday as a spike in coronavirus cases sparked concerns over the economic recovery from the pandemic. PHOTO: REUTERS

KARACHI:

Gold has continued to make and break new records since the outbreak of coronavirus pandemic. It hit a fresh all-time high of Rs105,200 per tola (11.66 grams) in Pakistan on Wednesday, providing protection to investors from rupee depreciation.

“Gold remains a key safe-haven asset among others (like US dollar and international crude oil). People will continue to invest in the precious metal until the uncertainty associated with Covid-19 persists,” said Pakistan Mercantile Exchange (PMEX), the country’s futures commodity exchange, Managing Director Ejaz Ali Shah while talking to The Express Tribune.

“In the morning, gold hit (over eight-year) high of $1,800 per ounce (31.10 grams) in the international market,” he said. In the evening, it returned to $1,775-76 where it had been hovering for the past few days, he said.

All Sindh Saraf Jewellers Association (ASSJA), which determines gold prices for local markets six days a week from Monday to Saturday, reported a price increase of Rs700 to Rs105,200 per tola in the afternoon on Wednesday for the next 24 hours.

The PMEX MD said the gold price had slowly and gradually maintained the uptrend since the outbreak of the disease.

“No one can predict with certainty what will be the future price of the commodity as global factors are involved. Trends suggest investors may continue to prefer investing in gold until Covid-19 and the uncertainty is there,” he said.

The probability of upside movement in gold prices is higher these days. “However, if the world succeeds in controlling Covid-19 and introduces a successful vaccine, then the reversal in the commodity’s price would be at the same speed at which it has been rising,” the PMEX MD said.

“People who have invested in gold have automatically covered the risk of depreciation of the local currency (rupee) against the greenback. And in the event of upside movement in gold prices, investors get the other benefit of investing in the safe commodity,” Shah added.

He said trade volumes in gold had improved at PMEX in recent weeks and months. Its share in total volumes including oil, cotton and other commodities used to be around 30%. “Trade volumes in gold have surged to around 50% these days,” he said.

Recently, the trade volume of crude oil had surged to 50% of the total volumes at PMEX when oil became volatile in world markets sometime around April. “Investors usually prefer to take positions in volatile commodities,” he said.

Rays Commodities’ former chief operating officer Adnan Agar said the other day people were taking new positions in gold on uncertainty associated with likely outbreak of the second wave of the global health crisis.

Secondly, the US dollar and other global currencies were losing their values since developed counties had injected trillions of dollars to stimulate their economies in these testing times. The Covid-19 outbreak has badly hit global economic activities.

He was of the opinion that investors may sell gold when it hit $1,800 per ounce to book profit and may reinvest in the commodity when it came down. “Gold may see a correction of around $100-150 per ounce in the short run. It, however, would stay above $1,700 till the world introduces a successful Covid-19 vaccine,” he said.

Pakistan remains a small market for gold at the global level. It meets the commodity’s demand through imports as it does not produce the commodity locally.

Accordingly, the gold price for local markets is determined keeping in view its prices in world markets, rupee-dollar exchange rate and its demand and supply in local markets.

International market

Gold prices rose to their highest in nearly eight years on Wednesday as a spike in coronavirus cases sparked concerns over the economic recovery from the pandemic and boosted demand for safe-havens.

Spot gold hit its highest since early October 2012 at $1,788.96 in early trade, and was little changed at $1,779.95 per ounce by 1205 GMT. US gold futures fell 0.4% to $1,794.00 per ounce.

“Uncertainty about the coronavirus, particularly in the US, which could put the brakes on an economic recovery, and the ultra-loose monetary policy of central banks are giving support to gold,” said Commerzbank analyst Daniel Briesemann.

A rise in negative-yielding global bonds was also adding to the metal’s appeal, he said. Lower bond yields reduce the opportunity cost of holding non-interest bearing gold.

But with investment demand likely to be higher than jewellery consumption this year, especially with practically no physical demand in Asia, gold’s price gains are “somewhat fragile”, he added.

[WITH ADDITIONAL INPUT FROM REUTERS]

Published in The Express Tribune, July 2nd, 2020.

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