Pakistan's bullion market rebounds after tough week

June 02, 2024 (MLN): After experiencing a rough patch last week, Pakistan's bullion market saw a slight revival this week as the price of its key benchmark, 24-karat gold inched up by Rs300 to settle at Rs240,300 per tola.

The Karachi Sarafa Association further reported that the price of 24-karat gold also increased to Rs206,019 per 10-gram, up by Rs258 WoW.

Similarly, the 22-karat gold was quoted higher at Rs188,850 per 10-gram.

Silver prices also reached higher in the domestic market, with 24-karat silver being sold at Rs2,820 per tola and Rs2,417.70 per 10-gram in the last trading session of the week.

The massive historical spike in the international market resulted in gold dealers to underprice the yellow metal by up to Rs4,000 due to a significant reduction in purchasing power.

Considering the dropping rates last week, the association started issuing rates based on the transparent international rate, incorporating the effect of changes in the exchange rate and free from any underpricing.

However, the purchasing power effect continued to act as a constraint to pricing this week, leading the association to once again underprice gold rates by Rs3,000 per tola.

As the week drew to a close at the end of May, it is worth mentioning that the domestic gold market closed stable on a month-on-month basis despite varying perceptions over the interest rate outlook in global markets.

On the global front, international spot gold wrapped the week at $2,327.2, down by 0.29% or $6.8 per ounce compared to the previous week's closing.

Investors' bets on interest rate cuts got dampened last week as the Federal Reserve's meeting minutes indicated officials would keep interest rates higher for longer as they struggle to bring inflation down to target.

This turned out to be bearish for the yellow metal, as in an environment of higher interest rates, gold loses its attractiveness due to the rising opportunity cost of holding it.

The uncertainty extended this week until the latest U.S. data on Gross domestic product (GDP) growth showed that the economy grew at a slower pace in the first quarter, reflecting the impact of keeping interest rates elevated for longer.

However, as the participants were not sure whether the weakening trend in inflation would continue, bets for cuts got mixed, resulting in gold closing in the red.

Regardless of this drop in the international rate, the relative depreciation of the domestic currency emerged as a rescuer for the gold market this week.

Pakistani Rupee (PKR) lost around 12 paisa against USD to settle the week at 278.326, compared to the previous week's closing exchange rate of 278.208.

As gold is denominated in U.S. Dollar terms, when the local unit falls against the greenback, the value of PKR-denominated gold rises.

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