Gold buying spikes as price dives to five-year low

KARACHI: Contrary to the sluggish demand for gold in the big bullion markets of India and China; investors in Pakistan increased buying the yellow-metal as touched an over five-year low in dollar-term worldwide, said dealers and jewellers on Wednesday.
"Trade volume in gold increased by 20 percent on Monday when it hit over five-year low of $1,088.05/ounce with a steep fall of around $30/ounce {in a single day}," said Amjad Khan, chief operating officer, at Pakistan Mercantile Exchange (PMEX). The long Eid holidays held no sway at the PMEX online platform, and traders made significant deals in gold.
"Volumes in volatile sessions usually go up," he said, adding Monday's session recorded Rs6 billion trade volumes in gold and crude, compared to usual Rs3-4 billion in routine sessions. "Gold share in total volumes stand at 30-40 percent {at PMEX}," he said.
Muhammad Hanif, a jeweller in the main bullion market, Sarafa Bazaar, Karachi, said the market witnessed 15-20 percent surge in buying on Wednesday, when it resumed working after observing the long Eid-holidays from July 17 to July 21.
"The increase in buying is in comparison with nil/nil buying during the end of the fasting month of Ramazan,” he said.
Hanif said the drop in price convinced households and investors to buy bullion.
"This is the wedding season in Pakistan...Steep fall in gold and rate of inflation have increased the purchasing power of households to buy the metal," he said.
Haji Haroon Chand, president of All Sindh Jewellers Association, said the fallen prices would create some demand for bullion in the days and weeks to come, as the metal may not decline anymore.
"World bullion markets may resume buying ahead of the Indian festival of diwali after two months," he said. "Gold has gone below its cost of production of $,1,200/ounce."
Khan cautiously added that it might touch $1,000-1,050/ounce by September when US Fed is expected to increase its interest rate.
However, the commodity would not stay there for long and make a quick rebound above its cost of production at $1,100-1,200/ounce.
"Recovery in the US economy has encouraged the Fed to increase its interest rate," he said.
Another reason for the current cycle of depression in gold is heavy selling by China, he said.
He said the end of economic sanctions on Iran is another bad news for gold. "Iran used to pay trade bills to Turkey in gold during sanction days. Now they would hold trade in currencies," he said.
Any setback in the recently developed understanding between International Monterey Fund and Greece may spike the price of gold in the near future, he said.
Reports suggest the current five-year low in gold has not revived gold buying in India, one of the biggest buyers in the world markets; unlike it witnessed in 2013 gold slide.
Analysts attributed sluggish buying to the halved rate of inflation- 4.5 percent in India against double digits at the end of 2013.
Analysts said that many people might have held off buying orders on expectation for further decline in the near future.
The bullion has decreased by $829/ounce, or 43 percent, to date ($1,093/ounce) from an all time high of $1,922 an ounce recorded in 2011.