Gold soars to new record high

High bullion demand ahead of likely fall in world currencies sparks price hike

KARACHI:

Gold spiked Rs2,500 and settled at a new all-time high of Rs260,200 per tola (11.66 grams) on Saturday on the back of strong demand for the precious metal in global markets over likely depreciation of some of the world's currencies and potential reduction in the US interest rate next month.

According to the All Pakistan Saraf Gems and Jewellers Association, the yellow metal soared $46 to a new record high at $2,507 per ounce (31.10 grams) in the international market.

Despite hitting the historic high in local market, the association said, gold cost Rs4,500 per tola less than the international market in Dubai. Talking to The Express Tribune, Interactive Commodities Director Adnan Agar said world markets were speculating that bullion may test $2,600-2,700/ounce in the next one month till mid-September 2024.

However, a massive drop in its price cannot be ruled out. Financial institutions, making strong buying of the precious metal, are anticipated to resort to profit-selling after reduction in the US interest rate, potentially in mid-September.

The metal may see a temporary dip of $300-400, as it soared a massive $700/ounce over the past one year.

Local gold markets will continue to follow the global trend and observe price fluctuations in rupee terms, going forward.

AKD Securities Director Research Muhammad Awais Ashraf said global economic uncertainty and geopolitical tensions in the Middle East and Europe fueled the recent rally in gold.

Reports saying that the West is considering freezing Russian foreign exchange reserves in international banks are prompting Moscow to build up its gold reserves.

Similarly, China and Turkey are adding to their reserves of the safe-haven asset to shield themselves from likely depreciation of their currencies as well as some other currencies, which would impact their liquid foreign exchange reserves.

JPMorgan and Goldman Sachs have said that the probability of a world recession has risen, sparking extensive gold buying across many countries.

He said the gold price would remain elevated around current levels in the near future.

Agar elaborated that speculation the US would cut its interest rate by 25-50 basis points in mid-September was fueling the rally.

If employment data comes out better than expected, the Fed would make a slight cut in interest rate. However, if the data worsens like the numbers for July, the rate cut would be significant, ie, 50 basis points. The size of the rate cut would give a new direction to the gold market.

He projected significant profit-selling post-rate reduction, but expected that any dip in prices would be for a brief period, followed by renewed buying from financial institutions.

Talking about the local market, he said most of the investors were betting on future counters at the Pakistan Mercantile Exchange (PMEX), while very few investors were taking physical positions as market talk suggested a massive correction in gold price in the near future.

He recalled that Pakistani investors had made massive buying of physical gold in 2021 and 2022, driven by political uncertainty and the change in government. At that time, both the US dollar and gold were in short supply.

Abdullah Abdul Razzak, a member of the local gold association, mentioned recently that jewellery-making business was slowing down as the consumer's purchasing power had sharply declined.

Demand for pure gold bars, however, remains high in the local market, with investors parking their savings in bullion to avoid the impact of likely devaluation of Pakistani currency in the medium to long run.

Bullion experts have advised local investors to exercise caution when making buying and selling decisions in the gold market.