Will the COVID-19 Driven 'New Gold Rush' Push Gold Prices Higher? Experts Advise "Prepare for Negative Impacts"

[Asia Economy Reporter Kim Hyewon] As the price of gold, a representative safe-haven asset, continues its record-breaking rise, attention is being drawn to the possibility of further increases, with a diagnosis emphasizing the need to detect changes in the real economy and financial markets to minimize negative impacts.

On the 2nd, the Hyundai Research Institute stated in its economic weekly report titled "Gold Entering $2000 (per ounce) and Its Implications" that the recent rise in gold prices shares similar backgrounds with past uptrends, such as deterioration in global real economic indicators, a weak dollar, increased financial market volatility, and accommodative monetary policies. However, factors like asset price increases and inflation hedging demand suggest the possibility of further gains.

Recently, gold prices have been soaring. On the 8th of last month, gold reached $1808.9 per ounce, entering the $1800 range for the first time since August 2011, and on the 29th of last month, it rose to $1970.8. At one point during trading, it even surpassed $2000 per ounce.

The rise in gold prices is attributed to increased preference for safe-haven assets amid growing doubts about global economic recovery due to the spread of COVID-19 and intensified US-China conflicts, which have amplified economic uncertainties. Additionally, liquidity injections by central banks worldwide have driven up prices of risky assets like stocks, leading investors to favor gold as a risk hedge. Under global monetary easing and low interest rate conditions, gold's appeal as a safe and non-interest-bearing asset is highlighted.

Junbeom Oh, Senior Researcher at Hyundai Research Institute's Economic Research Office and a contributor to the report, analyzed, "With global monetary easing led by the US Federal Reserve and continued low interest rates, there is a possibility that gold demand will persist as an inflation hedge due to falling real interest rates. Recently, strengthened downward pressure on the dollar has also acted as a positive factor for rising gold prices."

The Hyundai Research Institute urged efforts to detect changes in the real economy and financial markets caused by the reasons behind the gold price increase and to minimize any negative impacts that may arise.

First, it advised that uncertainties in the domestic and international economic environment caused by COVID-19 still exist, and preparations should be made for a potentially prolonged recession by strengthening the fundamentals of the domestic economy and blocking possible financial market uncertainties.

It also emphasized the need to minimize negative effects that may arise from the desynchronization between the real economy and financial/asset markets, which has occurred due to the real economy's deterioration amid the COVID-19 crisis alongside a boom in financial and asset markets.

Senior Researcher Oh stated, "If the real economy does not support the financial market boom, there is a risk of a sharp decline in asset values in the future. There is growing concern that asset prices may be overvalued compared to the real economy, leading to bubbles in asset markets."

He pointed out the high likelihood of facing rising commodity prices due to increased inflation expectations in gold and commodity markets, necessitating countermeasures. He also stressed the need to prepare for the timing of economic recovery and effective liquidity absorption measures. Accordingly, policy tools capable of distinguishing and addressing inflation caused by real economic recovery and increased real demand from commodity asset inflation due to excess liquidity and speculative demand are required.

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