Gold prices in Pakistan experienced a decrease on Monday. The price of 24-karat gold fell to Rs260,400 per tola, a reduction of Rs1,100 from the previous rate. Over the past week, the yellow metal has seen a decline of Rs1,000 per tola.
REASONS BEHIND THE DECLINE
The recent drop in gold rates has been attributed to uncertainty stemming from a mixed U.S. jobs report. The report has raised questions about the extent of the expected interest rate cut by the Federal Reserve later this month, impacting global gold prices.
GOLD (XAU/USD) PULLS BACK TO $2,500 AFTER REACHING ALL-TIME HIGHS
Gold prices experienced a retreat on Monday, falling to approximately $2,500 per troy ounce. This drop comes after the precious metal had surged to new all-time highs on Friday, influenced by a mixed U.S. Nonfarm Payrolls (NFP) employment report.
GOLD’S REACTION TO US NONFARM PAYROLLS
Following the NFP report, which revealed fewer job additions than expected in August and downward revisions for July and June, gold prices initially rose. The weaker labor market suggested a higher likelihood of a significant interest rate cut by the Federal Reserve, potentially a 0.50% reduction instead of the standard 0.25%. Lower interest rates generally benefit gold as they reduce the opportunity cost of holding non-interest-bearing assets.
However, gold’s gains were short-lived. The market reacted to additional data in the report, such as a drop in the Unemployment Rate to 4.2% from 4.3% and a 0.4% increase in wage growth, surpassing expectations. These indicators suggested that the labor market was not as weak as initially thought and that wage inflation was rising. Consequently, the probability of a 0.50% rate cut by the Fed decreased from around 40% to about 30%.
SUPPORT AND OUTLOOK FOR GOLD
Despite the recent pullback, gold remains supported by ongoing concerns about the U.S. economy. Fed Governor Christopher Waller indicated that rate cuts might be necessary to maintain economic momentum, though he also noted that the labor market was softening but not deteriorating. Waller’s comments have kept the possibility of a non-standard 0.50% reduction alive.
This week’s U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) data could further influence the outlook for interest rates. Analysts are currently divided on the impact of these inflation figures compared to employment data. Deutsche Bank’s Jim Reid suggests that employment data may be more significant at present.
GEOPOLITICAL AND ECONOMIC IMPACTS
Geopolitical tensions, such as the recent escalation between Israel and Hamas and ongoing conflicts in Ukraine, continue to drive demand for gold as a safe-haven asset. Additionally, the People’s Bank of China has not increased its gold reserves since May, maintaining its halt on buying.
TECHNICAL ANALYSIS: GOLD’S TRADING RANGE
Gold (XAU/USD) remains in a sideways trading range between the all-time high of $2,531 and a floor around $2,475. The metal is currently positioned in the middle of this range. A decisive breakout in either direction could be confirmed by a strong green or red candle or a series of consecutive candles piercing through the range levels.
The long-term trend for gold remains bullish, slightly increasing the chances of an upside breakout. A break above $2,531 would provide confirmation of a continued upward movement toward the $2,550 target. Conversely, a decisive break below $2,460 could indicate the start of a more pronounced downtrend.
LOCAL MARKET UPDATE
- 24-Karat Gold: Priced at Rs223,251 per 10-gram, down Rs943.
- 22-Karat Gold: Quoted lower at Rs204,647 per 10-gram.
In the domestic market, silver prices remained stable. The price of 24-karat silver was unchanged at Rs2,850 per tola and Rs2,443 per 10-gram.
GLOBAL GOLD MARKET
On the global front, spot gold traded near $2,496 an ounce, down $0.3 or 0.01% from the previous session.
