After days of upward pressure, gold prices in Pakistan pulled back sharply at the start of June. International prices shed $31 per ounce, dragging local rates down with them. Silver held firm on both fronts.
KARACHI: The present value of gold in Pakistan turned its table due to the uprising and experienced a drop of over Rs 3,000 per tola as the international market caused the value of the precious metal to plunge overnight. This occurred due to a fall of $31 per ounce in global spot prices.
Driving Force Behind The Decline
International pressure is the leading factor behind today’s development.
Today’s reduction in the price of gold in Pakistan is caused by a sudden change in the international spot price for gold. A steep decline in the price of gold internationally by $31 per ounce, resulting in a price of $4,494, was substantial enough that the change could be seen domestically without the need for further magnification. In Pakistan, gold prices are tied closely to international prices with the exchange rate of the rupee being the second determining factor.
Timing is also an important consideration. As month-end positions get squared off by institutions and jewellery firms that have held on to their long positions during the month of May, there is a possibility of a global downturn becoming more localized.
Silver remains firm
While the price of gold in Pakistan today has declined in all grades, silver bucked the trend completely. Not only was the local rate of silver for tolas at Rs8,034 stable, but even the per gram rate stood steady at Rs6,887. Silver prices have remained constant both internationally as well as locally, perhaps not surprisingly since gold and silver, although correlated in the long run, often behave differently from session to session.
Context: Gold’s Position after an Exceptional Performance
Correction in an overall bull trend
Even in light of the decline in the price of gold in Pakistan of Rs3,100, its prices currently stand at record-highs. Gold has been on a structural uptrend for the last two years, with reasons ranging from global instability to increased central bank purchases and consistent demand from Asian economies such as Pakistan, India, and China. A slight correction of 0.65 percent over one trading day doesn’t alter that.
For Pakistani consumers – be they jewellers who wish to re-stock in view of weddings, investors who would want to hedge their losses from depreciation of the rupee, or common citizens who plan on turning their savings into physical assets – a fall of more than Rs3,000 per tola is indeed an opportunity, albeit temporary. This window will remain open depending on whether the international market opens up in the next trading session.
Watchlist for the Coming Days
Today’s gold prices in Pakistan indicate a worldwide correction trend that could continue or not. The focus will be on the upcoming release of economic reports from the United States, statements from the Fed, and movements in the dollar index. Generally speaking, a stronger dollar is always bad news for the yellow metal. On the other hand, any increase in geopolitical risk or unexpected rise in inflation will prompt investors to return to gold very soon indeed.
