Gold plunges by 3% to 18-day low
Gold emerged as the lead asset in terms of return on investment (ROI) in Pakistan in 2022. It offered a 41% ROI (profit) in the year. photo: reuters
Gold prices dropped by slightly over 3%, or Rs7,800 per tola (11.66 grams), in a single day, falling to an 18-day low at Rs240,900 in Pakistan on Tuesday, reflecting global trends.
The commodity has seen a total drop of almost 5%, or Rs11,300 per tola, in the past two days compared to the all-time high of Rs252,200 reached on Saturday (April 20), according to data from the All Pakistan Sarafa Gems and Jewellers Association.
The significant correction in the global commodity market occurred after it shed 4.02%, or $102 per ounce (31.10 grams), in the past two days, reaching $2,309 per ounce on Tuesday.
Director of Interactive Commodities, Adnan Agar explained to The Express Tribune that the de-escalation of the Middle Eastern geopolitical crisis led global investors to opt for profit-selling. Although Israel retaliated against Iran, Tehran exercised restraint, resulting in reduced geopolitical tension in the region.
He noted that gold dipped to $2,290 per ounce during the day but rose back to $2,330 per ounce by evening in Pakistan.
The commodity is expected to remain range-bound over the next couple of days, projected to fluctuate between $2,350-2,360 on the upside and $2,250 per ounce on the downside.
Agar stated that the upcoming US Friday’s data on goods pricing would provide a new direction for the global commodity market going forward.
The inflation rate is once again rising in the global (US) economy. This trend would likely prevent the US central bank – the Fed – from cutting its interest rate in June 2024, shifting the expectation for the first rate cut to September 2024.
“This suggests the medium-term outlook for gold remains bullish in the international markets. Buyers remained active in the market. They returned to purchasing counters as soon as the precious metal slipped below $2,300 per ounce, driving it back up to today’s (Tuesday, April 23) opening level of $2,330 per ounce.”
However, there is concern over gold spiking by $400 per ounce in the past four weeks. Such a surge demands a market correction of around $200-250 per ounce. It remains difficult at this point to predict when this correction will occur, Agar added, recalling that gold hit an all-time high at $2,431 per ounce on April 12, 2024.
Pak Gold Market
Agar highlighted that historical rupee depreciation remains a strong factor in the rapid surge of gold prices in Pakistan compared to global markets, as the rupee-dollar parity plays a crucial role in determining the global commodity price for local markets.
He recalled that gold was priced at Rs7,000 per tola in Pakistan when it was available at $1,920 per ounce in the international market in 2011.
Last week, the commodity spiked to its all-time high at $2,431/ounce in the global market on April 12, 2024, rising by 27% (or $511/ounce) in the past 13 years. However, in the same period, gold soared 35-fold (or 3,503%) or by Rs245,200 per tola, reaching a record high at Rs252,200 per tola in Pakistan on April 20, 2024.
Gold has continued to remain a safe haven for global and local investors to invest their savings and avoid devaluation.
Rupee Drops
The development coincided with the domestic currency depreciating by Rs0.04 to Rs278.37 against the US dollar in the inter-bank market amid a tick-up in import value in March 2024, according to data reported by the State Bank of Pakistan (SBP).
The gradually depreciating domestic currency has cumulatively dropped by 0.48%, or Rs1.34, in the past four weeks compared to the five-and-a-half-month high closing at Rs277.03 per dollar in the last week of March 2024.
The rupee has continued to record slow depreciation despite the country reporting a nine-year high current account surplus at $619 million for March 2024 on Monday, suggesting that the supply of foreign currency has remained higher compared to demand in the local market.
However, the rupee dropped due to a slow increase in import value in recent months, rising to around $4.4 billion in March compared to less than $4 billion a few months ago.
Agar suggested that the rupee would depreciate in the longer run.
Published in The Express Tribune, April 24th, 2024.
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