Analyst predicts no major price decline for gold in Pakistan in 2022 due to steep depreciation of local currency
Updated Friday Dec 31 2021
Gold lost its shine in 2021, recording its “worst performance in six years”, and only managing to record a gain of Rs12,000 per tola (or 10.52%) in the period, against last year's gain of Rs25,600 (or 29%).
The precious commodity remained under pressure due to currency parity, failing to touch new peaks, and thus managing only to touch last year's record high of Rs132,000 per tola.
The price of the precious commodity on the last day of 2021 clocked in at Rs126,000 per tola and Rs108,025 per 10 grams compared to the value of Rs114,000 per tola and Rs87,737 per 10 grams recorded on December 31, 2020.
In the international market, the precious metal hit a record high of $1,959 per ounce (31.10 grams) while dropping to a low of $1,676.
“Overall in 2021, gold’s performance was driven primarily by the worldwide dovish stance of major central banks — especially during Q1,” AA Gold Commodities Director Adnan Agar told Geo.tv.
He, however, added that in late June, on the back of a more hawkish-than-expected statement by the US Federal Reserve, followed by other major central banks' moves, gold prices were reduced but concerns of higher inflation offset part of the drag that hawkish stance brought.
Agar said: “Gold was also influenced as prices fell about 5% in 2021, the most since 2015 due to upbeat investor sentiment as the global economy started to recover from the impact of COVID-19 which offset the safe haven's demand.”
In 2021, on average, gold prices ranged from around $1,750 to $1,850 for most of the year.
The analyst predicts a bleak future for the commodity in the near future as US Federal Reserves has signalled three interest rate hikes in 2022 at its recent meeting in December 2021. “This is a sentiment dampener for gold, a non-interest bearing asset class,” he said.
“In Pakistan, we cannot see a major price decline due to steep depreciation of our currency. Any major price decline in international gold prices would be eclipsed by the rising dollar price in Pakistan and any upward trend would be seen as double price gain for gold,” Agar said.
He added that the US Fed assumed inflationary pressures as transitory earlier. However, now they seem to prioritise reining in high inflation due to supply shock and are rolling back monthly bond purchasing at a quicker pace, which shall pave way for rate hikes earlier than previously anticipated in 2022.
“With Fed and other major central banks switching gear and the era of easy money coming to an end, this would not be a favourable backdrop for gold prices,” the commodity expert said, adding that from a technical perspective, gold prices seem bearish in 2022 — the commodity is likely to have major support in the $1,550 to $1,650 range and on the upper side, resistance in the 1,900s.