Domestic gold heats up as international rate reaches new peak

March 31, 2024 (MLN): The domestic bullion market has recently witnessed one of its most bullish months as the international gold rate reached a new all-time high.

The key gauge representing the local gold market, 24-karat gold closed March at Rs234,800 per tola, up by Rs19,100 MoM and just Rs6,200 short of its record price level of Rs240,000 witnessed back in June 2023.

This monthly rally extends from the past month as the yellow metal in Pakistan continues to list gains on higher international rates.

International spot gold closed March at a record-high rate of $2,233.12, achieving a remarkable surge of 9.24% MoM, a return not seen since July 2020.

Traders’ bets on U.S. Fed announcing rate cuts soon optimized over the month amidst certain data publications and statements by Fed officials.

The U.S. labor job data released during the first week of March revealed that the unemployment rate jumped to 3.9% after holding at 3.7% for three consecutive months.

Furthermore, the data on manufacturing activity showed that production slumped, while the wage data aligned with market expectations.

These data points triggered hopes for an early rate cut, however, the gains got capped after the consumer price index (CPI) data for February showed that prices rose 3.2% YoY, slightly higher than the market expectations of 3.1%.

The rising price pressure weakened the sentiments of the market regarding a potential shift towards expansion by the Fed as inflation continued to act as a constraint.

Nevertheless, the lost and weakened sentiment lasted for only a short period as the bullish rally for the yellow metal resumed at a greater pace after the Fed hinted three interest rate cuts in 2024.

It is important to mention here that the US Federal Reserve stuck to its decision to leave interest rates unchanged at 5.25%-5.5% for the fifth consecutive meeting.

Following these adjustments, the 10-year U.S. government bond yield dropped to 4.206% in March, in contrast to the previous month’s closing yield of 4.252%.

Likewise, the U.S. Dollar Index (DXY), which tracks the value of the greenback against six other top currencies also witnessed pressure over the month, yet managed to close with a marginal 0.05% MoM drop.

Lower borrowing costs tend to spark gold prices as they reduce the opportunity cost of holding the safe-haven asset.

Meanwhile, a weaker dollar makes gold more affordable for holders of other currencies, exerting a positive impact on gold prices.

Later on, investors were closely monitoring the personal consumption expenditures (PCE) index data, the Fed's preferred gauge of inflation, which showed that iflation slowed in February, firming markets' hope for an expansionary shift.

Despite the international rate breaching its height and touching new price levels over the month, domestic gold failed to unlock a new all-time high.

The primary reason that can be attributed to this is the relative strengthening of the domestic currency against the mighty greenback, which exerted an adverse impact on the domestic bullion.

The Pakistani Rupee (PKR) concluded March as its fourth consecutive monthly victory due to optimism of a successful staff-level agreement with the International Monetary Fund (IMF).

The fluctuations in the home currency’s interbank rate are a crucial denominator for the local rates, as gold is denominated in U.S. dollars and when the PKR appreciates against the greenback, the value of PKR-denominated gold falls.

Nonetheless, the escalating trend in international prices once again outruled the impact of a stronger Rupee and domestic investors joyed one of the most beneficial months.

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