Gold falls; liquidity model eyes $5,025

Ten-gram gold was sold at Rs398,950, down Rs686. Monday's session had already seen a Rs1,800 decline that took the per-tola rate to Rs466,136. Over the two sessions, the metal has shed Rs2,600. Silver also weakened, falling Rs50 to Rs7,129 per tola.

Internationally, gold fell more than 3% on Friday after Federal Reserve Chairman Kevin Warsh's remarks on the need to curb inflationary pressure. Spot gold was down 2.9% at $4,567.23 an ounce by 1744 GMT, its lowest level since August 20,.

US gold futures for December delivery also settled 2.9% lower at $4,529.90. The pullback followed a strong run that had taken prices well above $4,500. Near-term sentiment turned cautious as markets priced in a higher chance of tighter US policy.

"Higher rates typically weigh on gold because the metal pays no yield," said Adnan Agar, Director at Interactive Commodities. Even after the decline, a Fidelity analysis circulated by The Kobeissi Letter values gold at $5,025 an ounce on the basis of its historical relationship with the global M2 money supply.

That figure implied a roughly 9% upside from the $4,600 level used in the note. The latest drop widens the gap to the model price. Global M2 grew 8.5% year-on-year in August, up from about 7% in June.

Faster money-supply growth has historically supported gold and other hard assets by increasing the stock of currency relative to a scarce metal, highlighted Agar. Global gold ETFs have attracted $18.9 billion in net inflows over the past 12 months - the largest trailing 12-month total since February and an improvement on the $12 billion recorded through June.

Those flows point to continued institutional and retail demand even as prices correct. A sustained move back towards $5,000 internationally will typically feed through to higher tola rates in Karachi, Lahore and other centres, subject to the rupee and local premium charged by Sarafa markets.

Jewellers and investors would watch the next US inflation prints and Fed comments,. Gold remains sensitive to the dollar, rate expectations and geopolitical risks. "The Fidelity framework is model-based and not a forecast," he said.

Short-term price action can diverge from liquidity indicators when policy signals shift quickly. The Pakistani rupee extended its marginal gains against the US dollar on Tuesday and closed at 277.46, up Rs0.01 from Monday's finish at 277.47.