Gold's meteoric rise

De-dollarisation pushes investors to flock to gold amid global economic uncertainty, geopolitical shifts

KARACHI:

The precious metal, gold, has emerged as a safe haven for the global investor community, including in Pakistan, claiming the crown as the world's most valuable asset. The centuries-old global asset has gained over one-third of its total value in just the past year, soaring to a record high of $2,758 per ounce (31.10 grams) last week.

Although the bullion is expected to extend its rally towards the next thresholds of $2,800-3,000 per ounce (significantly over Rs300,000-350,000 per tola, or 11.66 grams in Pakistan) in the medium to long term—likely in 2025—experts anticipate a major correction of $300-500 per ounce around the first quarter (Jan-Mar) of 2025. Some small profit-taking is also expected between now and the end of December 2024.

Changing world dynamics, including heightened geopolitical tensions in the Middle East and Europe that have sparked debates about a possible World War III, as well as a global movement toward de-dollarisation of trade through the BRICS platform, have continued to fuel the extraordinary rally in gold.

BRICS member countries, including superpowers Russia, China, and India, are aggressively building their gold reserves, replacing US dollar-denominated foreign exchange reserves to lessen the greenback's influence globally. Political uncertainty related to the upcoming US presidential election, just weeks away in mid-November, and the strong expectation of a second consecutive interest rate cut by the Federal Reserve in early November have also boosted gold's ascent.

According to Syed Mohsin Hassan, Head of Commodities at Topline Securities, the current rally in gold can be traced back to 2018 when China officially introduced the petroyuan—the Chinese currency for global petroleum trades—challenging the dominance of the US dollar in oil transactions. Gold was trading at around $1,300 per ounce globally and Rs56,000-67,000 per tola in Pakistan that year.

The US-China trade tensions escalated thereafter, with then-US President Donald Trump, who is a strong contender against Kamala Harris in the upcoming election, imposing trade restrictions on China by barring tech firm Huawei from operating in the US in 2019. Both countries raised import tariffs on several items, including steel. Recently, the US has also moved to limit imports of low-cost Chinese electric vehicles, solar power technology, and chips to protect its domestic industries, which has further inflated gold's value.

Interactive Commodities, Director, Adnan Agar noted that the intensity of Israel's retaliation against Iran also determined short-term gold prices. Initial reports suggested Iran intercepted a missile attack on Saturday, sustaining limited damage with no casualties reported. "Since the attack caused no major harm to Iran, gold prices will remain range-bound. However, if Iranian nuclear or oil installations were hit, the conflict could escalate and push gold prices up by $100-300 per ounce within days."

"Geopolitical tensions, high inflation, and low-interest rates are always favourable for gold as a safe haven," Agar added. He anticipates that the Israeli aggression in Palestine and Lebanon, and the Russia-Ukraine conflict could ease or their intensity may scale down after the US presidential election, potentially triggering a correction in early 2025.

However, the record-high US debt, now at $37-38 trillion, continues to weigh on the global economic order, encouraging international gold buying. Both experts foresee hints of a potential World War III and expect de-dollarisation efforts to sustain global and local gold markets.

Vice President and Head of Commodities at JS Global's Trading Department, Syed Mohammad Ali remarked that, under ordinary circumstances, gold would likely have capped its rally at $2,460-2,470 per ounce. "Now the commodity is poised to reach $3,000-3,500 per ounce by 2025."

He also projected a major correction of $400-450 per ounce in the first quarter of 2025. The easing of monetary policies by the US, European Central Bank, and Bank of Canada, intended to support global economic activities, will continue to drive demand for the safe haven of gold.

Abdullah Abdul Razzak, an active member of the All Pakistan Gems and Jewellers Association, noted that demand for pure gold bars is on the rise among local investors, while demand for gold ornaments has nearly vanished as prices have risen beyond household affordability. He advises people to buy silver jewellery for weddings and gifts instead of artificial ornaments, as silver retains resale value, unlike artificial jewellery.

Pure silver was priced at Rs3,350 per tola in Pakistan on Saturday, while it surged to $33.70 per ounce in the international market.

The writer is a staff correspondent