Gold shoots to 14-month high

Persistent depreciation of rupee against US dollar contributing to the surge


Salman Siddiqui October 24, 2021
The current price is only Rs3,800 lower than the all-time high of Rs132,000 recorded in August 2020. photo: reuters

KARACHI:

The gold price surged by 8% in the outgoing week to a 14-month high at Rs127,200 per tola (11.66 grams) despite the fact that rates of the yellow metal in the international market remained largely range bound over the past one month.

A significant depreciation of the rupee against the US dollar is considered to be the primary reason behind the spike given that Pakistan meets its demand for the precious metal through imports.

However, the uptick in local demand for the commodity from investors encouraged members of the bullion pricing committee to increase its price far more than the impact of currency depreciation.

“Investors are aggressively buying gold and as a result demand for the yellow metal has skyrocketed in the local market,” All Sindh Saraf and Jewellers Association (ASSJA) member Abdullah Abdul Razzak Chand said while talking to The Express Tribune.

It was, however, difficult to quantify the uptick in demand due to the absence of a centralised mechanism to record buying and selling of gold, he said.

“Stock market participants are diverting investment to gold because the bourse is experiencing selling pressure due to overheating of the economy,” he said.

“Gold is once again attracting safe-haven investment,” said AA Gold Commodities Director Adnan Agar.

“People usually take positions in gold during inflationary times and at present inflation is the largest challenge in Pakistan,” he said.

The investors, who used to pour money into foreign currencies, particularly in the US dollar to avoid the impact of inflation, are now buying gold because the government and the central bank have tightened regulations pertaining to the purchase of foreign currencies in the open market.

Economic managers were making efforts to stop the hoarding of dollars and curb the use of illegal channels like Hawala and Hundi for currency exchange, he said.

With a fresh increase of Rs1,600 per tola on Saturday, the price of gold surged Rs9,200 (or almost 8%) in the past week to a 14-month high at Rs127,200. The current price is only Rs3,800 lower than the all-time high of Rs132,000 recorded in August 2020.

On the other hand, the price of the commodity in the global market is $277 away from historic high of $2,070 per ounce (31.10) and hovered at around $1,793 on Friday. Gold rates soared to historically high level in both local and global markets on the same day in August 2020.

Global gold and currency markets are closed on Saturdays and Sundays unlike Pakistan’s open markets which are off only on Sundays. Therefore, the latest surge of Rs1,600 in the local price on Saturday is apparently driven by uptick in demand.

“People are investing in gold to avoid inflation since the economic indicators are deteriorating these days,” BIPL Commodities’ analyst Rizwan Ahmed Samra said.

The monthly inflation reading soared to 9% in September while rupee depreciated by over 14% in the past five months to an all-time low of Rs174 against the US dollar in the inter-bank market on Friday.

“The local market may see gold surging to a new all-time high of around Rs140,000 per tola in the weeks ahead as market speculation suggests that rupee would depreciate to Rs180 against the greenback in future,” Chand said.

Agar said that gold price in the global market might surpass $1,820 per ounce if the US releases a poor monthly job data next week and also tightens its monetary policy in November far more than expected.

Gold may continue to move in a range of $1,700-1,800 per ounce over the next five to six months if US cuts liquidity injection by around $15 billion per month to zero over the next six months. At present, it is injecting around $80 billion a month at present.

Published in The Express Tribune, October 24th, 2021.

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