Russia-Ukraine tensions spark gold rally in Pakistan

November 25, 2024 (MLN): Pakistan’s bullion market, which had been struggling following Trump's win in the US presidential election, managed to stage a strong rebound last week as international gold posted its biggest weekly gain since March 2023.

Trump's win sparked demand for risky assets such as stocks and bitcoin due to improved policies outlook in the U.S, which in turn, strengthened the US dollar and made the yellow metal relatively expensive for holders of other currencies.

However, geopolitical tensions, which have been driving up gold prices for some time resurfaced on heightened uncertainty over the Russia-Ukraine conflict rekindled safe-haven demand.

The 33-month-old war between the two countries further escalated after U.S. and UK authorized Ukraine to strike Russian territory.

In response, Russia fired a ballistic missile at Dnipro, a Ukrainian city, prompting investors to flock to safe-haven assets.

The demand for gold was further bolstered as Nvidia, the world's most valuable company forecasted its slowest revenue growth in seven quarters, defying the strong expectations of investors.

As a result, international spot gold surged nearly 6% or over $153 per ounce over the week to settle at $2,716.34, breaching the $2,700 threshold for the first time in over two weeks.

Following this, 24-karat gold, the key benchmark in the domestic market settled the week at Rs282,700 per tola, up by Rs15,300 or 5.72% compared to last week’s closing.

In Pakistan, gold rates are determined by international spot rates, converted to the local currency using interbank exchange rates with an additional $20 premium.

With this, the yellow metal’s gain in the ongoing calendar year has reached a staggering 28.5%, while its fiscal year gain is an impressive 16.96% for the fiscal year.

Comparative analysis shows that local equities have outpaced gold significantly as the KSE-100 index has delivered a fiscal year return of 18.93% and a record-breaking 49.38% for the current calendar year, both now outpacing gold.

Impact of Local Currency

It is worth mentioning that Pakistan’s currency also has a major role in driving gold prices in the country.

The Pakistani rupee (PKR) has remained largely stable against the strong U.S. dollar for a prolonged period, which generally benefits local gold as it 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 meager loss of 9 paisa against the mighty Dollar.

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

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