Gold hits record high in Pakistan amid global speculation

Overvaluing of rupee, pent-up demand for greenback pulls currency down

KARACHI:

Gold prices in Pakistan reached a new all-time high of Rs254,000 per tola (11.66 grams) on Thursday, driven by international investors taking heavy positions in anticipation of the US central bank cutting interest rates in September 2024.

The bullion surged by Rs4,600 per tola, setting a new record after the commodity spiked by $60 per ounce (31.10 grams) to $2,470 in the global market, according to the All Pakistan Sarafa Gems and Jewellers Association. Despite the notable hike, gold remained underpriced by Rs4,000 per tola in Pakistan compared to the Dubai market. The previous all-time high was Rs252,200 per tola in May 2024.

Adnan Agar, Director at Interactive Commodities, explained to The Express Tribune that the new high in Pakistan followed a record high of $2,483 per ounce in world markets on Wednesday morning. He anticipated that “the bullion may test a new high of over $2,500 per ounce in the next couple of days, as global investors are showing a strong appetite for gold. The international gold market is exhibiting a strong uptrend these days.”

He noted that some global research houses and investment banks, including Citibank and Morgan Stanley, have predicted that gold could reach $2,700 and $2,800 per ounce in 2024. The surge is primarily driven by speculations that the Federal Reserve will start cutting its interest rate from the current record high of 5.50% in September 2024, amid rising unemployment and easing inflation in the US. Agar added that data from July and August 2024 regarding unemployment and inflation will shape the outlook for a potential rate cut in September. A change in this view could impact gold market sentiments.

Rupee drops slightly

The Pakistani rupee ticked down by Rs0.06 to close at Rs278.17 against the US dollar in the inter-bank market on Thursday. This slight drop followed a two-day closure due to Muharram holidays. According to the State Bank of Pakistan (SBP), the currency had closed at a two-month high of Rs278.11 per dollar on Monday after gaining Rs0.29, following Pakistan’s early win of an International Monetary Fund (IMF) staff-level agreement for a $7 billion new loan programme last week.

The overvalued rupee and pent-up demand partially pulled the currency down by the close of trading. However, the rupee has gained Rs0.17 in the current fiscal year to date, having recovered 2.75% to Rs278.34 per dollar in FY24, which ended on June 30, 2024. Market speculation suggests the currency will remain largely stable over the next three to four months around current levels.