The risk-averse investors and the central banks across the globe as well as in Pakistan have rushed to safe heavens like commodity markets as the global debt crisis originating from the United States and Europe seems to have set its course towards, what some economists believe, another double-dip recession.
Whereas the investors’ confidence is badly shaken at the now volatile stock markets across the globe including that of Pakistan, the commodity market in the terrorism-hit country witnessed a record boom Thursday. The day saw trading volumes at the country’s first and only de-mutualised market climbing record 7,289,657,950 on the back of what the observers at Pakistan Mercantile Exchange (PMEX) said profit-conscious investors’ desire for reaping fruit of the present upside rally in gold. “Yesterday’s closing shows yet another all time high of trading on Pakistan Mercantile Exchange,” said an observer at PMEX. Per ounce price of the precious metal in international commodity market is currently sea-sawing at $1800 due to increased demand. On Thursday the concerns for a deepening European debt crisis and a possible distress among the European banks, like that of France, helped propel gold prices to a record $1,813.79 an ounce in Asian markets. “This is an indication that more and more investors are including commodities, mainly gold in their investment portfolios,” said a market observer at Pakistan Mercantile Exchange. According to PMEX data, the trading in gold, silver, crude oil and mini gold remained robust on Thursday at the local commodity market. The Exchange recorded total trading lots in the listed commodities at 28,589. The trading volumes for gold, silver, crude oil and minigold, respectively, stood at 6,564,947,725, 340,658,166, 383,787,059 and 265,000. Whereas the lots traded in gold, silver and crude oil were counted at 24,981, 502 and 3,101, respectively, according to PMEX data for Thursday.
Analysts believe that there is little confidence in currencies especially the Euro, which began teetering with the Greece debt crisis. Dollar was also on the downward slide with the US downgrade in ratings by Standard and Poor’s from AAA to AA+. Another aspect of this situation, Raeda observed, was that low interest rates were supposed to prevail for the next two years, till 2013, which again tended to favour commodity markets as a growing potential investment avenue. PMEX’s weekly summary of daily trade volumes shows that during the current week the trading activity stood at 7,289,657,950 against last week’s 4,698,787,533 with volumes for gold jumping to 6,564,947,725 from 4,100,928,606 during the week under review. “Gold and other commodities are offering investors with an option of investing in non yielding assets at a low opportunity cost,” Raeda said. On the other hand, volumes at local equity market, the Karachi Stock Exchange (KSE), are hitting a new record of a head-on dip with analysts terming post-recovery gains as unsustainable. Friday, being last trading day of the week, saw volumes at KSE standing at a meager 39.77 million shares despite a rallying benchmark, KSE-100 share index, that closed 25 points lower at 11,239.78. “(The) absence of follow-up as depicted by persistently declining turnover from the past week, disallowed the benchmark to sustain early gains,” said Hasnain Asghar Ali of Aziz Fidahusein and Company. The analyst said despite an air-pocket opening in various high priced stocks on Friday, the sellers stayed cued up at the market rates. “It, therefore, stayed as a strong conviction that when the dust in international economies will settle the local horizon is likely to lead to a likely reduction in sustainable PE multiples,” he added.
“I would term it quite logical for investors to turn in this direction as an attempt to not only safeguard their portfolios but also diversify to get better returns,” viewed Raeda Latif, a commodity market analyst. Attributing the ongoing shift of investment to the existing global situation, the analyst said that since the prices on the exchange were real time international prices one could see it as an adequate reflection of what was happening in the global economic scenario and its impact on the commodity markets worldwide. “There is a severe crisis of investors’ confidence globally and that leaves very few avenues to turn to. Due to the status of gold as a store of value and a safe haven, investors are preferring to divert their investment to these commodities,” she said. Raeda opined that central banks had been significant buyers in the last two years in their quest for diversifying their reserves out of the dollar. Furthermore, she said, large organizations and institutions were also seen opting for gold investment along with central banks and individual investors. “In the previous decade the central banks were sellers every year but now that supply overhang is gone,” she said adding “all these factors favour gold.”
