Gold prices in Pakistan decreased on Thursday, with prices for a gram dropping to PKR 37,177.11 from PKR 37,270 the day before. The rate per tola also decreased, falling to PKR 433,629.20 from PKR 434,709.90.

Globally, the gold market is experiencing a downturn as traders are cashing in on profits. Despite the recent decrease, gold remains up around 55% for the year. The US is facing economic tension due to an ongoing government shutdown and potential trade escalations with China.

Central Banks Increasing Gold Reserves

Central banks worldwide, especially in emerging economies, have been increasing their gold reserves, with 1,136 tonnes added in 2022. Gold acts as a safeguard against inflation and currency devaluation, often showing an inverse relationship with the US Dollar and US Treasuries.

Gold prices tend to rise amid geopolitical tensions or reduced interest rates. The asset’s cost fluctuates mostly depending on the US Dollar’s strength, as gold is priced in this currency. A weakening dollar usually results in rising gold prices.

We are seeing some profit-taking in gold after its historic 55% surge so far this year. This short-term dip appears to be a technical correction, as the fundamental long-term uptrend remains strong. Traders should view this as a period of consolidation rather than a major reversal.

Market Reactions to Economic Indicators

With the market pricing in a 97% probability of a 25-basis-point rate cut from the Federal Reserve, the underlying support for gold is solid. We have seen this pattern before, such as during the rate-cutting cycle of 2019, which preceded a significant rally in bullion. A weaker US dollar following the Fed’s decision will likely provide another tailwind.

The ongoing US government shutdown, now in its fourth week, continues to fuel safe-haven demand. During the record 35-day shutdown in late 2018 and early 2019, we saw gold prices steadily climb over 4% on the back of political uncertainty. Until a funding resolution is passed, this instability provides a firm floor under the gold price.

US-China trade tensions are adding to market jitters, with new threats of export curbs keeping investors on edge. This is reflected in the CBOE Volatility Index (VIX), which has been holding above 20, indicating a heightened level of investor anxiety. The scheduled meeting between the US and Chinese presidents could spark sharp, unpredictable moves.

We must also consider the structural demand from central banks, which provides a long-term cushion for prices. Recent World Gold Council data for Q3 2025 showed that central banks collectively added another 250 tonnes to their reserves, continuing the record pace seen since 2022. This consistent buying from official sources helps absorb selling from speculators.

Given these conflicting signals, we see an opportunity in the options market to manage risk and position for the next move. Buying call options with longer-dated expiries allows for participation in the strong underlying uptrend while limiting downside risk. Conversely, short-dated put options could serve as an effective hedge against further profit-taking or a breakdown in US-China talks.

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