Safe asset gold funds also 'collapse' amid COVID-19 crisis

[Asia Economy Reporter Song Hwajeong] Gold, known as a representative safe-haven asset, is also being affected by the novel coronavirus disease (COVID-19). Recently, as gold prices have fallen, gold fund returns have struggled to avoid weakness.

According to financial information company FnGuide on the 19th, gold funds recorded a return of -15.51% over the past week. This is the fourth lowest return among 43 thematic funds classified by FnGuide. In gold funds, 12 billion KRW has been withdrawn over the past month.

This weakness in gold funds is due to the recent continued decline in gold prices. On the 18th (local time) at the New York Mercantile Exchange, April delivery gold fell by $47.90 per ounce (3.1%) from the previous day to $1,477.90. This is the first time gold prices have fallen below $1,500 since November 27 of last year. It dropped by 9% over the past week.

It is analyzed that the spread of COVID-19 caused global stock markets to plunge daily, shaking the financial markets, leading investors to liquidate assets, which in turn caused the decline in gold prices. Kim Sohyun, a researcher at Daishin Securities, said, "The cause of the gold price decline is presumed to be an increase in profit-taking demand to secure liquidity due to a rise in margin calls (additional collateral requirements) following the sharp drop in risk asset markets."

However, there is a forecast that the downward trend in gold prices will not continue. Researcher Kim said, "We judge that the decline in gold prices does not mean a decrease in demand for safe-haven assets," adding, "Gold prices remain at the highest level since 2009 when compared to prices of risk assets such as crude oil and copper." He further explained, "Going forward, gold prices will turn upward amid expanding financial market volatility, due to accommodative monetary policies and fiscal expansion policies to overcome the pandemic, and the increase in the scale of negative-yield bonds."

Researcher Kang Daeseung of DB Financial Investment said, "Further declines in gold prices will be limited," adding, "The spread of COVID-19 has not yet peaked, and concerns about first-quarter economic growth are significant, so inflows into safe-haven assets like gold are expected to continue for the time being."

This content was produced with the assistance of AI translation services.