Gold falls on US inflation fears

Gold prices in Pakistan fell sharply on Wednesday, shedding Rs3,000 per tola, as bullion extended its decline in international markets amid rising expectations of a US Federal Reserve rate hike following stronger-than-expected inflation data.

In the local market, gold prices settled at Rs437,836 per tola, according to rates released by the All-Pakistan Gems and Jewellers Sarafa Association. Similarly, the price of 10-gram gold decreased by Rs2,572 to Rs375,373. The latest decline followed an increase of Rs900 per tola on Tuesday, reversing the previous session's gains as international prices came under pressure from a stronger US dollar and rising Treasury yields.

In the international market, spot gold fell 1.7% to $4,086.06 per ounce by 9:03 am EDT (1303 GMT), touching its lowest level since October 7. US gold futures for December delivery dropped 1.6% to $4,108.60 per ounce, as per Reuters. Gold extended its losses for a third consecutive session after US consumer prices accelerated in September, strengthening expectations that the Fed could raise rates this month.

The US dollar index gained 0.4%, making dollar-denominated gold more expensive for holders of other currencies. Meanwhile, rising yields on 10-year US Treasury bonds added further pressure on the non-yielding precious metal.

Adnan Agar, Director of Interactive Commodities, said international gold prices had touched the low of $4,080 per ounce during the day, after reaching the high of $4,190. The market was trading around $4,090 at the time of his assessment. He attributed the downward pressure to rising US inflation, which increased expectations of tighter monetary policy, while elevated oil prices could add to inflationary pressures.

Agar said some international analysts were anticipating the possibility of gold declining towards $3,700-$3,800 per ounce in the coming days. He added that a sustained recovery in gold could depend partly on a decline in oil prices. Conversely, oil moving towards $100-$108 per barrel could weigh further on bullion by reinforcing inflation concerns and expectations of higher interest rates.

However, the outlook will depend on subsequent economic data, central bank signals and movements in the dollar and bond yields. Meanwhile, the Pakistani rupee gained Rs0.01 against the US dollar, closing at 276.95 in the inter-bank market.