The price of Gold jumped Rs2,300 to a 14-month high of Rs119,000 per tola (11.66 grams) on Thursday.
The price hike has occurred owing to the rising global commodity prices as well as the depreciation of the local currency. The rupee dropped to an all-time low at Rs171.2 against the greenback in the interbank market. The rising demand for foreign currency to pay for the growing import bill has contributed to the devaluation of the local unit.
Pakistan imports gold in order to meet local demand as well. As per the All Sindh Saraf and Jewellers Association (ASSJA) gold spiked $29 in a single day to hit a one-month high of $1,800 per ounce (31.10 grams) in the international market.
Director at AA Gold Commodities Adnan Agar said “Gold price surged in global market after reports of a persistent rise in inflation in the US”. He added that US inflation rose way beyond market projections to a 13-year high of 5.4% in September.
ASSJA President Haji Haroon Chand said, “The rise in gold price in local currency (14-month high) is larger than the increase in dollar terms (one-month high) mainly due to sharp depreciation of the rupee against the greenback over the past five months”.
According to data provided by the Central bank, the latest reduction of 0.04% (or Rs0.07) on Thursday has led to the rupee being devalued by 12.43% (or Rs18.93) to Rs171.20 in comparison to the 22-month high of Rs152.27 which was recorded in May 2021. Agar added that the expectations are that global inflation will remain high as energy prices witness a drastic surge ahead of the winter season.
He further elaborated, “The oil price is not expected to recede over the next one year as its supply remains low compared to global demand.”
However, Gold investors, are expected to sell the metal to book profit when it touches around $1,810-1,820 per ounce during the next week. Gold price is expected to remain within the range of $1,700-1,800 till the end of December of the current year.
Agar said, “It could drop below $1,700 only in case oil declines which is highly unexpected. Investors will continue to sell whenever it will cross the $1,800 mark since high inflation rate has badly hit the purchasing power of people all over the world.”
Past trends show that people tend to take aggressive positions in gold during inflationary days. However, most investors, especially young investors are seen taking aggressive positions in cryptocurrencies to make quick gains.
Bitcoin has returned back to $57,000 in only two months after dropping at nearly $30,000-35,000. Agar said that if the US Federal Reserve unexpectedly makes larger cuts in its injection of money into its economy, then global investors might take higher positions in gold at lofty prices at over $1,820-1,830 per ounce.
The US has announced to progressively raise the benchmark interest rate and lower its injection of money by $15 billion every month to zero by April-May 2022.
Agar added that gold would maintain its movement between $1,700-1,800 per ounce in case cuts in money injection continue as per the previous announcement of $15 billion per month. Experts are of the view that there is no space left for the rupee to depreciate further.
It is expected to stabilize once the country announces the resumption of the International Monetary Fund’s (IMF) $6 billion program soon.
Pakistan is in negotiations with the IMF these days in Washington to finalize terms and conditions for resuming the loan program. Rupee may see a correction of Rs2-3 against the dollar from the current level.