November 19, 2023 (MLN): Bullion investors in the domestic market joyed significant gains this week driven by the surge in international price.

According to the Karachi Sarafa Association, 24-karat gold settled the week at Rs215,100, marking an increase of Rs4,100 per tola.

This signifies a substantial rebound compared to the previous week's closing, where the price plummeted by Rs3,600 per tola owing to a noteworthy reduction in global prices.

However, as the price of gold surged in the international market, the domestic bullion experienced a reversal this week.

International Market

International gold notched its first weekly gain in three weeks as the price of spot gold soared by 2.18% to conclude at $1,980.73.

These gains were attributed to a weaker dollar and declining U.S. treasury yields.

The U.S. Dollar index (DXY), which tracks the value of the greenback against six other top currencies dropped by 1.88% over the week and marked its biggest decline since early July.

Moreover, the 10-year U.S. government bond yield dropped to 4.439% in contrast to the rate of 4.462% at the close of the preceding week.

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

Likewise, falling yields also benefit the metal as they reduce the opportunity cost of holding the safe-haven asset.

The market's expectation regarding the Federal Reserve concluding its policy tightening cycle fueled further following the release of the key economic data this week, which indicated eased inflation pressures.

It is important to mention that the US Federal Reserve, in its meeting on November 02, decided to leave interest rates unchanged for the third consecutive time at 5.25%-5.5%.

The U.S. consumer price index (CPI) for October 2023 rose by 3.2% YoY and unchanged MoM compared to the figures in September.

These statistics showed that monthly inflation rose at a slower-than-expected pace, wherein the market was expecting an increase of 3.1% YoY and 0.1% MoM.

Similarly, the Producer Price Index (PPI) for final demand fell by 0.5% in October, the highest substantial decrease in prices since a 1.2% drop in April 2020.

These trends exerted pressure on the U.S. dollar and treasury yields, which ultimately supported prices in the international market.

Domestic Currency

The Pakistani Rupee (PKR) ended its four consecutive weeks of losses by appreciating 53 paisa against the U.S. Dollar this week.

Since gold is denominated in U.S. dollars, when the PKR strengthens against the USD, the value of PKR-denominated gold falls.

To recall, as per the agreement made between provinces to establish one unified rate across the country, a $20 premium is adjusted in the price of international spot gold to calculate the domestic gold price.

The pressure resulting from the gap between the demand and supply of dollars prevailed over the market and the local unit witnessed a 17-day-long losing streak against the mighty dollar. 

However, towards the end of the week, the PKR snapped this losing streak due to the positivity arising from the staff-level agreement successfully being reached with the International Monetary Fund (IMF) on the first review under Pakistan's Stand-By Arrangement (SBA).

In light of this recent development, the outlook for the local unit is expected to improve once the board approves the disbursement of SDR 528m, which is around $700m.

Nevertheless, the positive impact associated with the rise in the international gold price was strong enough to offset the effect of the appreciation in the local currency this week, ultimately resulting in gains for domestic gold.

Copyright Mettis Link News

Posted on: 2023-11-19T16:28:25+05:00