Gold sustains record-breaking rally, rates discrepancy arises

September 29, 2024 (MLN): The record-breaking rally of Pakistan’s bullion market was further spurred this week fueled by the continuous boost in international gold prices.

24-karat gold, the key benchmark in the domestic market settled the week at Rs276,000 per tola, just Rs1,000 shy of its all-time high reached two sessions back.

Over the week, the safe haven's price surged by Rs3,500 per tola or 1.28% in line with the rise in the international spot gold rate.

With this, the yellow metal’s gain in the ongoing calendar year has spiked to 25.45%, while it stands at an impressive 14.19% for the fiscal year. This outpaces the KSE-100 index's fiscal year return of 3.63% but falls short of the record-breaking 30.17% return for the current calendar year.

Apart from the global factors to which this rally is credited, the local gold market is also witnessing an uptick in demand ever since the central bank announced to change currency notes next year to enhance security features.

Resultantly, the yellow metal’s appeal to hoarders—who are looking to convert their informal currency into gold—is creating a rush in the bullion market.

What further supports the reason mentioned above is the disappearance of the underpricing of rates in September, which had previously emerged due to diminishing purchasing power among people, hinting a level of confidence about demand.

Practically speaking, with gold rates hovering near Rs280,000 per tola, the affordability factor among the general public is likely present in the market, however, it is unfortunately overshadowed by the hoarders' accumulation.

Another interesting fact that deserves attention is that, despite the gold rates provided by different associations matching, a discrepancy still exists in market trades.

As of Friday, certain jewelers based in Karachi informed Mettis Global News that the yellow metal is being traded at Rs285,000, reflecting a substantial gap of Rs9,000 per tola compared to the rate quoted that day by the Karachi Sarafa Association.

Back in the same month last year, the local bullion was shut down for approximately one month due to these discrepancies in rates across different cities of Pakistan.

This was associated with illicit activities in the domestic gold market. The government launched a robust crackdown on Dollar hoarders, who eventually rushed to accumulate gold, which was available at lower rates. Thus, the bullion has not released rates.

Regardless of the official closure, covert mafias continued to operate the market, by demanding prices that were justified to them alone.

This ties back to an important point mentioned earlier in the article that currently, due to the ongoing issuance of new currency notes, hoarders are once again rushing towards gold, which may once again be the reason for the differing rates.

Notably, the current gold prices include a $20 premium on top of the international gold price, which the president of the All-Pakistan Sarafa Gems and Jewellers Association (APSGJA) agreed with all provinces to address this turbulence.

Global Trend

The combination of geopolitical conflicts, monetary easing across economies, a weakening Dollar and robust buying by central banks has created a record-shattering rally for the yellow metal.

The U.S. Federal Reserve’s aggressive 50 basis points cut continues to enhance investors' appeal for gold, which pays no interest.

As a result, international spot gold climbed to $2,658.55, up by 1.38%, while marking its third consecutive weekly gain.

Another factor contributing to the boost in metal prices is China's stimulus as the country slashed its standing lending facility (SLF) by 20 basis points across all tenors to achieve its 5% target of economic growth.

On the back of growth-centered initiatives by the U.S. and China, silver also reached its highest level since 2012.

Looking ahead, policymakers see the federal funds rate falling by another 50bps by the end of this year, another 100bps in 2025, and by a final 50bps in 2026 to end in a 2.75%-3% range, paving the way for a brighter outlook for gold.

Impact of Local Currency

It is worth mentioning that Pakistan’s currency also has a major role in driving gold prices in the country.

The Pakistani rupee (PKR) has remained largely stable against the strong U.S. dollar for a prolonged period, which generally benefits local gold as it allows changes in international gold prices to have a more direct impact, as the local market remains shielded from currency fluctuations.

On a weekly basis, the home currency registered a gain of 20 paisa against the mighty Dollar.

Since gold is denominated in U.S. Dollar terms, when PKR appreciates against the greenback, the value of PKR-denominated gold falls.

However, the substantial global uplift once again outweighed the slight impact of the strengthening of the home unit, leading to record gains on a net basis.

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