Gold digs down as US-China relations normalise

Gold prices continued to tumble on Monday in Pakistan as international prices of the commodity recorded a sharp decline following reports of a temporary deal that will result in lower tariffs on imports between the United States (US) and China.

According to the All Pakistan Sarafa Gems and Jewellers Association (APSGJA), the price of one tola 24 karat gold fell by a staggering Rs10,400 in the domestic market, causing it to come to a rest at Rs340,500. 10-gram 24 karat gold rates fell substantially too, falling to Rs291,923 after logging a decline of Rs8,917.

Reports indicate that a similar phenomenon was witnessed on Friday when per tola gold rates declined by Rs1,800. Prior to the downtrend, the commodity’s price witnessed a surge owing to falling investor confidence in global capital and financial markets. 

Historically, gold has been perceived by many as a safe-haven asset, and with the US-China trade war sending global capital markets into a free fall, many preferred to park their funds in gold, considering it to be a great source of value.

This allowed per tola gold prices to reach as high as Rs390,000 in the domestic market. However, analysts predicted that a sharp revision was due. The yellow metal experienced a substantial fall in its price as spot prices fell by a whopping 2.6 percent on Monday, resulting in international prices falling to $3,237.04 per troy ounce.

US gold futures followed a similar trend, recording a 3.1 percent decline in their position to drop to just $3241.70. A director from a reputable commodity institution in Pakistan has attributed the decline in gold prices to improving commercial ties between the two economic hegemons of the Western and Eastern world: the United States and China.

According to reports, both economic giants have decided to issue a temporary, 90-day moratorium on tariffs, which has led to a 90 percent drop in tariffs between the two economies. Analysts have outlined that if gold rates fall below $3,180 per troy ounce, the commodity could witness prices plunge even further, as prices falling below the $3,180 support level could potentially trigger sell-offs. 

Currently, investors look to the US and China to determine the trajectory that both countries have chosen relative to the other. While normalisation could result in a further decline in prices, analysts believe that gold prices may begin to rise again if US-China relations sour.