Rising Dollar Weakness Pressure... Gold Hits Highest Price for 5 Consecutive Trading Days

[Image source=Yonhap News]

[Asia Economy Reporter Eunmo Koo] The price of gold continues its high-flying streak, breaking record highs day after day. This is analyzed to be due to the recent resurgence of the novel coronavirus infection (COVID-19), which has caused the U.S. economy to show a relatively slow recovery pace, among other factors, fueling the weakness of the dollar that moves inversely to gold.

According to the Korea Exchange on the 28th, the price per gram of 1kg gold spot on the KRX gold market closed at 77,460 won, up 4.76% from the previous day. This marked the fourth consecutive trading day of record highs. The rise in gold prices continued on the same day, with the price per gram of gold spot at 1 p.m. reaching 80,900 won, up 4.44% (3,440 won) from the previous day.

Gold prices are also showing sustained strength in overseas commodity markets. According to Bloomberg on the same day, on the 27th (U.S. local time), the price of gold on the New York Commodity Exchange (COMEX) closed at $1,955.40 per troy ounce (1 troy ounce = 31.1035g), setting a new all-time high. This surpassed the previous record of $1,920.94 set on September 6, 2011. Since the low point in March ($1,477.90) when the COVID-19 pandemic broke out, the gold price curve has steadily trended upward, with the slope steepening sharply over the past week.

As gold prices continue their record-breaking run, the returns of public funds investing in gold are also rising. According to FnGuide, which aggregates returns of funds with assets over 1 billion won, as of the 27th, the recent one-week return of 12 domestic gold funds was 5.78%, and the one-month return was 10.47%. This performance surpasses that of domestic equity funds (3.76%) and overseas equity funds (6.27%) over the past month.

Unlike the gold price, which is breaking records and approaching the $2,000 mark, the dollar is losing strength and falling sharply. The dollar index (DYX), which recorded a high of 102.817 points on March 20, has since steadily fallen below 95 points as of the 24th and dropped to the 93-point level the day before.

The reason gold prices continue to rise without pause is due to a series of events that encourage the dollar's weakness. First, changes in the economic recovery pace between the U.S. and the Eurozone act as factors weakening the dollar. While the U.S. shows signs of a slowdown in economic recovery due to the resurgence of COVID-19, the Eurozone is experiencing a rebound in economic indicators amid a calming trend.

The expansion of dollar liquidity supply is also a factor weakening the dollar. Since the spread of COVID-19, the U.S. Federal Reserve's (Fed) monetary policy has shifted to a more accommodative stance compared to other major countries' monetary policies. Sanghyun Park, a researcher at Hi Investment & Securities, explained, "The Fed's accommodative monetary policy stance is likely to continue until COVID-19 is completely eradicated, which can lead to a trend of dollar weakness."

The strength of gold is expected to continue in the medium to long term. As the U.S. economic recovery slows, preference for emerging markets is relatively increasing, and pressure on the dollar's weakness is intensifying. Jungho Shin, a researcher at eBest Investment & Securities, said, "The increase in gold investment after a crisis should be interpreted as preparation for economic recovery and inflation expansion," adding, "This also suggests that it reflects not only growth in the U.S. but also recovery in other demand sources and changes in currency values."

However, in the short term, there is an assessment that gold prices may undergo a correction. Jinyoung Choi, a researcher at eBest Investment & Securities, explained, "From a technical perspective, the expected value of the dollar index, which has an inverse relationship with gold, is approaching an oversold zone," adding, "The expected value of gold has already exceeded the overbought threshold, so there is a possibility of a short-term correction triggered by the dollar."

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