International gold spike triggers bullish rally in domestic market

March 09, 2024 (MLN): The domestic bullion market witnessed a strong bullish momentum this week, delivering massive returns to local investors as the international spot gold reached a new all-time high.

The primary benchmark of the domestic gold market, 24-karat gold spiked nearly Rs10,000 per tola this week, reaching Rs230,200, a price level not witnessed since September 2023.

The 10-gram 24-karat gold and 22-karat gold also gained Rs8,488 and Rs7,781 WoW, to settle at Rs197,360 and Rs180,913, respectively.

This strong weekly rally extends from the past two weeks as gold prices in Pakitan continue to list gains on higher international rates.

International spot gold closed to a record high of $2,179.11 on Friday driven by strengthened expectations that the U.S. Federal Reserve could begin cutting interest rates soon.

The U.S. Fed's monetary policy stance has been the core talk of global financial markets as investors are now anticipating major central banks to shift towards expansionary policy.

Crucial data points released in these couple of weeks have provided dovish signals. 

The data on manufacturing activity in the U.S. last week showed that production slumped, while the data on prices came in line with market expectations. Furthermore, U.S. labor job data on Friday revealed that the unemployment rate jumped to 3.9% after holding at 3.7% for three consecutive months.

The stronger risk appetite was further buoyed after Federal Reserve Chair Jerome Powell stated that the central bank is not far from shifting toward monetary easing.

Consequently, the U.S. Dollar Index (DXY), which tracks the value of the greenback against six other top currencies dropped by 1.1% this week.

Moreover, the 10-year U.S. government bond yield also fell to 4.079% in contrast to the rate of 4.184% last 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.

Domestic Currency's Performance

As the fluctuations in the domestic exchange rate are also a key denominator of the calculated price in the domestic market, it is important to note that the Pakistani Rupee (PKR) has settled this week with a gain of around 16 paisa against USD.

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

However, the rally in the international rates was significant enough to offset the impact of a relatively strengthened domestic unit.

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