Gold declines sharply despite global rebound

Gold prices in Pakistan fell sharply on Friday, with the rate of one tola declining Rs5,600 to Rs456,736, despite a rebound in international bullion markets, as investors assessed stronger US inflation data and expectations of a Federal Reserve rate hike. According to rates shared by the All-Pakistan Gems and Jewellers Sarafa Association, the price of 10-gram gold decreased Rs4,801 to Rs391,577. On Thursday, gold had fallen Rs600 per tola. The latest decline brings the domestic market under renewed pressure after recent fluctuations in international bullion prices and due to currency-linked pricing. Internationally, spot gold rose 1.2% to $4,366.69 per ounce by 11:22 am EDT (1522 GMT) on Friday. Despite the recovery, the metal remained down around 1.4% for the week, reflecting continued pressure from expectations of tighter US monetary policy. The US consumer inflation picked up in August, reinforcing market expectations that the Federal Reserve may raise rates at its upcoming policy meeting. Traders were pricing in an 87% chance of a rate hike in September. Higher interest rates generally weigh on gold by increasing the opportunity cost of holding the non-yielding asset. However, persistent inflation, geopolitical uncertainty and physical demand can provide support to bullion over the medium to long term. Interactive Commodities Director Adnan Agar said gold had fluctuated between the low of $4,292 and the high of $4,402, with the market later trading around $4,360. He said the US inflation had increased compared with the previous month but remained in line with market forecasts, triggering nearly $100 movement in gold prices. "Gold is still standing in that range, which is neither strictly positive nor negative," Agar said, adding that some negativity was building as the metal repeatedly failed to break above $4,400. He identified $4,300 and $4,400 as key levels, noting that buying tends to emerge near the lower level while profit-taking sets in around the upper end. Agar said the Federal Reserve's monetary policy decision on Wednesday would be critical for determining the next direction of gold. He noted that if the Fed raised rates but adopted a dovish tone in its subsequent statement, gold could remain range bound. However, a rate hike accompanied by a hawkish statement could initially push bullion lower. In the longer term, he argued, rising inflation could support gold's appeal as a hedge, while strong international physical demand may help the metal recover even if it faced short-term pressure from higher interest rates. Silver prices in Pakistan also declined, falling Rs253 to Rs6,871 per tola. Meanwhile, the Pakistani rupee gained Rs0.03 against the US dollar in the inter-bank market, closing at 277.32 compared with 277.35 a day earlier.