July 09, 2023 (MLN): Domestic bullion witnessed a significant slump in the first week of July, as a direct result of the long-standing Staff Level Agreement being signed between the International Monetary Fund (IMF) and Pakistan.
24-karat gold closed the first week of July at a rate of Rs208,200 per tola, marking a weekly decline of Rs7,800 per tola, or 3.61%.
The downward trajectory for the commodity market this week is attributed to the long-standing SLA worth $3 billion finally being signed between the IMF and Pakistan on June 29.
This agreement sparked investors' confidence, leading to a loss of appeal for risk-off assets as investors leaned towards more risk-on assets, as can be seen by Pakistan Stock Exchange performance this week.
Financing from IMF allowed Pakistan breathing room and lowered the chances of a payment default.
As a result, the economy has started to move towards stability.
The KSE-100 index experienced a significant upswing and recorded the highest DoD points gain ever of 2,446.32 points or 5.9% on July 3, this shows investors’ confidence increased as they preferred risk-on assets over risk-off assets like gold.
It is worth noting that this week's decline in gold prices comes on top of the 12.54% decline in 24-karat gold in the month of June, closing the month at Rs216,000 per tola.
The commodity market in Pakistan was closed earlier in the month due to Eid-ul-Adha. When it reopened on July 3, the price of gold significantly dropped by Rs8,800 per tola on that day.
Moreover, the agreement strengthened the Pakistani rupee (PKR), as it appreciated significantly in both interbank and open markets.
Since gold is denominated in U.S. dollars, when the Pakistani Rupee (PKR) appreciates against the U.S. dollar, the value of PKR-denominated gold falls.
However, according to market experts, the relief provided through the deal with IMF is perhaps temporary, not a long-lasting solution for the survival of the country.
Moreover, rather than celebrating the deal, the experts emphasized the importance of introspection and pursuing development for the country.
During the week, the financial markets at times weighed on the deal being a temporary solution and the need for further developments to ensure stability in the economy.
Resultantly, Domestic bullion finally found some ground around the psychological level of Rs200,000, as 24-karat gold marked a consecutive streak of gains for 3 trading sessions during the week.
However, the gains were not significant enough to offset the losses incurred in the early trading sessions of the week, as a result, gold prices deflated.
Going forward, the IMF board is scheduled to meet the Pakistan side on July 12, 2023, following the SLA which was finalized on June 29, 2023, this will further influence the financial markets.
On the global front, international spot gold closed the week at $1,925.53, witnessing a weekly gain of 0.29% and international spot silver gained 1.67% to close at $23.08.
International gold daily time-frame chart
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Posted on: 2023-07-09T16:52:18+05:00
