Gold maintains record-breaking spree

Investors asked to remain cautious about abnormal growth, price volatility

KARACHI:

Gold hit a new all-time high at Rs225,300 per tola (11.66 grams) on Thursday in line with the global trend amid talk of likely default by the United States.

Talking to The Express Tribune, AA Gold Commodity Director Adnan Agar projected that the precious metal may surpass Rs300,000 per tola in the next couple of weeks, but the “abnormal” rally would be for a short duration only.

Bullion hit the record high at $2,080 per ounce (31.10 grams) in the international market at around 3am on Thursday (according to Pakistan standard time).

The local pricing body, the All Pakistan Saraf Gems and Jewellers Association (APSGJA), revised the gold rate upwards by Rs2,600 (or 1.2%) to Rs225,300 per tola.

Agar said gold may spike to $2,300-2,400 per ounce in May on talk of likely default by the US on interest payment. Accordingly, the local gold price may reach in the range of Rs300,000 to Rs325,000 per tola.

“The US has hit its debt ceiling of $32 trillion and lacks the capacity to service debt on June 1, 2023,” he said.

The US government will present a bill to increase the debt ceiling by $6 trillion to $38 trillion. However, the opposition, which is in majority in Congress, is expected to oppose the bill.

He added that the US would not default and approve the increase in debt ceiling in the last days of May. “The situation is highly anticipated to keep gold volatile. The likely uptrend in global gold will keep local prices elevated as well.”

However, he said the rally would lose steam in a couple of weeks and gold would retreat to around $1,800 per ounce.

He recalled that the US had faced the same issue in 2011. At that time, gold gained $450 per ounce to the then all-time high at $1,900 and retreated to the pre-crisis level of $1,530 within a few days. “History is going to repeat itself.”

Agar advised global and local investors to remain highly cautious as the abnormal growth in gold may come to a halt anytime, as happened in 2011.

He said the gold price was also soaring because of the collapse of three small banks in the US, with reports suggesting the collapse of other such financial institutions.

In addition to international factors, he said, Pakistan’s gold market had its own fundamentals that were supporting the precious metal.

“Pakistan has not yet succeeded in reviving the International Monetary Fund (IMF) loan programme and the risk of default is also looming,” Agar said, adding that locals were taking position in gold to avoid the impact of rupee devaluation against the US dollar amid a six-decade high inflation at 36%.

Earlier, they were buying US dollars, but now they are parking their savings in gold.

“Dollar is no more a safe haven, as it is likely to lose value against other global currencies amid the US crisis. In addition to this, a global movement to de-dollarise international trade through the introduction of a new world currency, called BRICS, has also increased demand for gold.”

Pakistan Mercantile Exchange (PMEX) has given physical delivery of 1,000-1,500 tola over the last one and a half month after bullion appeared short in the local market, he added. Earlier, the physical delivery by PMEX had been nominal.

On the other hand, the rupee remained stable at around Rs284 against the US dollar in the inter-bank market, as demand for the greenback stood low.

The rupee maintained its upward trend for the second consecutive working day, as it rose by 0.02%, or Rs0.08, to Rs283.82 against the greenback on Thursday, according to the central bank.

Published in The Express Tribune, May 5^th, 2023.

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