As tensions escalate in the Middle East, rising gold prices are capturing the attention of investors worried about the war’s knock-on effects on global markets. Many choose to park their savings in the safe haven of gold to protect against currency depreciation in their respective countries.
In Pakistan, the price of the precious metal hit a one-month high of Rs 214,600 per tola (11.66 grams) on Saturday, in line with the global trend. The continued depreciation of the rupee also contributed to the rise in the value of gold.
Gold has seen a remarkable comeback, rising nearly 9% or Rs 17,500 in the past three weeks, starting from a recent low of Rs 197,100 per tola on October 13, 2023. The conflict between Palestine and Israel that erupted in early October, along with falling rupee, led to this increase in gold prices. AA Gold Commodities director Adnan Agar noted: “Gold has soared by around $200 an ounce to over $2,000 in recent days in the wake of the Middle East crisis.” He pointed out that it was trading at about $1,800 an ounce for days and weeks before the war began.
Haji Haroon Chand Rahid, President of All Pakistan Sarafa Gems and Jewelers Association, pointed out that Israeli aggression against Palestine is one of the factors contributing to the rise in gold prices. He said the gold market is primarily a paper trade rather than investors taking physical possession of the commodity against payment. He expressed the belief that the value of gold will likely decline once diplomatic efforts to reach a ceasefire succeed.
Agar discussed that gold had reached a “triple top” near all-time highs in the range of $270-280 per ounce (31.10 grams) in global markets about six months ago. The fact that gold prices retested these levels for the third time suggests that it may have a strong base for further gains if the conflict in the Middle East escalates.
Hagar speculated that the recent political actions of the superpowers indicate that Israel may continue the war for the next six months, similar to Russia’s aggression in Ukraine. However, he clarified that this is not a full-scale war and is limited in scope. If investors were genuinely worried about the war, the price of crude oil should have continued to rise, instead of falling to $81 a barrel, a day after touching a recent high of $93 a barrel.
He believes the current pause in the conflict may lead to a correction of $50-60 per ounce from the current price of nearly $1,993 per ounce. If the aggression continues and extends, the safe haven could rise to $2,100-$2,200 per ounce. However, if the war ends due to ongoing global diplomacy and peace returns to the region, gold prices will likely plummet to pre-war levels of around $1,800 per ounce.
Adnan Agar, whose company is an active member of Pakistan Mercantile Exchange (PMEX), partially disagreed with Chand and noted that many investors buy physical gold, not just trade on PMEX.
Chand cautiously predicted that gold price may hover around Rs 218,000 to Rs 220,000 per tola during the current crisis.
Experts have previously linked fluctuations in gold prices to the rupee-dollar exchange rate, as most of the precious metal is imported to meet local demand. Hence, changes in the rupee-dollar exchange rate play a vital role in determining gold prices in the local market.
In recent weeks, the domestic currency depreciated by 2.63% or Rs 7.48 to trade at Rs 284.31 against the US dollar in the interbank market on Friday, compared to a recent three-month high of Rs 276.83/$ recorded in mid-October.
It is estimated that 90% of Pakistan’s gold demand is met through smuggling, with only 10% officially imported. The government recently launched a crackdown on gold and currency smugglers, leading to a recovery in both assets.
Published in The Express Tribune, November 5u2023.
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