Mayor Gripped by Fear... Only Buying Dollars

Dollar Index Hits Highest Level Since 2017
Cash Preference Causes Sharp Slowdown in Gold and U.S. Treasury Bonds
Risk Assets and Stocks Plunge... KOSPI Falls Below 1500 Level

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] While gold and U.S. Treasury bonds, known as safe-haven assets, are plummeting, only the value of the U.S. dollar is soaring to unprecedented heights. The fear caused by the novel coronavirus infection (COVID-19) has triggered a preference for cash, breaking the financial market’s conventional wisdom that "safe assets prevail in times of crisis." As demand for cash surges, the Dow Jones Industrial Average has fallen below the 20,000 mark for the first time in three years.

On the 18th (local time), the international gold price dropped 3.1% ($47.90) from the previous day to $1,477.90 per ounce. Compared to $1,700 per ounce on the 9th, this represents a decline of 13%. The yield on the 10-year U.S. Treasury bond, which had fallen to 0.318% earlier this month, surged to the 1.26% range within ten days. An increase in bond yields means a decrease in bond prices. Gold and U.S. Treasury bonds, which had been soaring as representative safe-haven assets until early this month, have sharply reversed into weakness.

Meanwhile, the value of the U.S. dollar surged in the New York foreign exchange market. The Dollar Index, which reflects the dollar’s value against six major currencies including the yen and euro, reached 101.16, the highest level since April 2017. The Wall Street Journal (WSJ) described the situation as "A rush for cash shook the financial system."

The U.S. dollar becoming the preferred choice of investors worldwide is analyzed to be based on a shift in perception that cash is king. In a situation where money is not circulating, cash is needed to pay salaries and purchase daily necessities. Kit Jex, an investment strategist at Soci?t? G?n?rale, said, "The desire to secure dollar liquidity is driving the dollar’s value higher than any other asset."

Major British media also reported that investors urgently converting to cash are selling highly liquid government bonds first. They explained that amid the acute crisis triggered by COVID-19, investors’ desire to hold dollars has strengthened to the extent that they are selling even gold and U.S. Treasury bonds, which are typical safe-haven assets, to secure liquidity. A representative from AmeriVet Securities in New York remarked, "Cash is king here."

The situation for risky assets like stocks has become serious. On this day, the Dow Jones Industrial Average in the New York stock market plunged as much as 10% intraday and closed down 6.30% (1,338.46 points) at 19,898.92 compared to the previous day. CNBC reported that the Dow Jones has returned to levels seen before President Donald Trump’s inauguration. The UK FTSE index fell 4.05% to 5,080.85.

As U.S. and European stock markets plunged, the European Central Bank (ECB) took action. The ECB abruptly decided to introduce an emergency bond-buying program worth 750 billion euros (approximately 1,031 trillion won) on the same day.

Meanwhile, in the domestic stock market, the KOSPI index fell below the 1,500 mark intraday. As of 11:05 a.m. on the 19th, the KOSPI stood at 1,499.77, down 5.75% (91.43 points) from the previous trading day. The KOSDAQ index also dropped 5.51% (26.75 points) to 458.51. Until 10:45 a.m., foreign investors sold a net 261.6 billion won, continuing their selling streak for 11 consecutive trading days, while individual investors bought a net 85.9 billion won.

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