Gold continues to dazzle safe-haven investors in Pakistan
January 21, 2023
- Gold shines brighter ahead of monetary policy announcement.
- Pakistani bullion still remains undercost in comparison to UAE's.
- Precious metal continues to hold charm for safe-haven investors.
Gold prices in Pakistan ripped higher as demand continued to remain northwards amid the elusive US dollar and a run-down rupee ahead of the monetary policy committee’s Monday meeting — where the central bank is seen taking a hawkish stance to stem runaway inflation.
Data released by the All-Pakistan Sarafa Gems and Jewellers Association (APSGJA) showed that the bullion price increased by Rs1,200 per tola and Rs1,029 per 10 grams to settle at Rs187,200 per tola and Rs160,494 per 10 grams, respectively.
Gold is deemed an inflation hedge, but is extremely sensitive to monetary tightening, which multiplies the opportunity cost of holding the bullion, which is by and large, like other precious metals, a non-yielding asset. That is to say, a precious metal investment cannot be 'put to use' in an attempt to generate a return.
Holding on to its Friday’s trend, gold in the local market remained "undercost" by Rs3,000 per tola, as compared to the Dubai market, according to the jewellers association.
Dealers, however, said it was hard to tell if the yellow metal market had priced in the possible 100-200 basis points (BPS) increase in the policy rate.
Pearl Securities, in a research note, said the State Bank of Pakistan (SBP) might push the policy rate higher by 100-200 bps to control persistent inflationary pressures.
The Monetary Policy Committee (MPC) meeting of the SBP is scheduled to be held on Monday, January 23, 2023.
“We expect the SBP to continue to pursue monetary tightening by increasing the policy rate by 100-200bps to 17-18% in an effort to control persistent inflationary pressures in the economy,” the brokerage said.
It added that the MPC organised its previous meeting on November 28, 2022, in which the committee increased the policy rate by 100bps to 16% as headline inflation continued to grow despite a slowdown in projected GDP growth to 2% for FY23. External account challenges persisted even after significant moderation in the current account deficit following a sharp decline in imports.
It should be noted that Pakistan meets almost all its gold demand through imports, and traders follow its international price in setting rates in the country. Jewellers import the metal against the US dollar and UAE dirham before converting its price into rupees.
Most of the buyers in the local market are investors, who were earlier securing their savings in the shape of US dollars to avoid the impact of a weakening local currency amid mounting inflationary pressures
Gold prices remained volatile during the week, with the precious commodity undergoing correction during the first three sessions; however, it regained its shine. The price rose by Rs2,000 during the volatile week that ended on January 14.
As per the market buzz, investors have started moving to the bullion market following the shortfall of the dollar in the open market. In the black market, illegal traders were selling the dollar for Rs290-300 compared to Rs229 in the interbank market.
Silver closed unchanged at Rs2,080 per tola and Rs1,783.26 per 10 grams.
