Gold's bullish run in Pakistan continues unabated

August 24, 2024 (MLN): Pakistan’s bullion market continued its upward rally this week as gold prices once again reached a new peak due to a continuous international surge.

24-karat gold, the domestic market's key benchmark, gained Rs3,500 per tola to settle the week at Rs263,700.

Apart from benefiting from the global uplift, the yellow metal’s demand in the country surged due to a recent development.

Later in the week, the central bank announced to change currency notes next year to improve security features, which led to a rush among hoarders to convert their informal currency into gold, according to a local jeweler who spoke to Mettis Global News.

This resulted in a sudden pick in demand for the commodity and further boosted the already rising gold prices in the country.

However, it is worth noting that if we exclude this sudden rise in demand from the hoarders, gold dealers continued to underprice the yellow metal as the local population, apart from hoarders, still lacked the means to afford it at such peak prices.

Eventually, the underpricing narrowed to Rs1,000 per tola from Rs4,000 in the last trading sessions of the week due to the speculative activity commencing after SBP’s announcement.

So far in the ongoing calendar year,  the return to investors from investing in local gold has risen to nearly 20% or Rs43,700.

On the global horizon, the international spot gold also settled at a new peak of $2,512.49, rising by $4.35 or 0.17% per ounce on a weekly basis.

The strengthened perception of rate cuts in the U.S. starting in September resulted in a massive drop in the U.S. dollar and yields.

The U.S. Dollar Index (DXY), which tracks the value of the greenback against six other top currencies posted its fourth consecutive weekly decline and dropped to a level last seen in July 2023.

Moreover, the 10-year Treasury yield also fell to similar lows, down by 83 basis points this week to 3.8%.

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 for rate cuts was further boosted after U.S. Federal Reserve Chair Jerome Powell, in a speech on Friday said the time has come for the Fed to cut its key policy rate.

It is worth mentioning that Pakistan’s currency also had a major role in supporting gold prices this week.

The Pakistani rupee (PKR) has remained stable against the strong U.S. dollar for a prolonged period, which generally benefits local gold.

This stability 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 Rs5 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.

Copyright Mettis Link News