Frustrated Investors Due to Stagnant Gold Prices

[Asia Economy Reporter Minji Lee] Gold prices, which had soared to unprecedented heights until last month, have been moving sideways for a month, causing frustration among investors who jumped into gold investments. Investors who boarded the last train based on rosy forecasts that the upward trend could continue until the end of the year are experiencing increasing losses.

Amid a sharp drop in international gold prices, gold-related products are displayed at the Korea Gold Exchange in Jongno-gu, Seoul on the 12th. Photo by Jinhyung Kang aymsdream@

According to the Korea Exchange on the 16th, the price per gram of 1kg gold spot in the KRX Gold Market closed at 74,630 won, up 0.65% (480 won) from the previous trading day. Compared to the intraday high of 82,970 won on the 5th of last month, it has dropped by about 10%. Gold prices in overseas commodity markets are also showing sluggish performance. On the 15th, gold traded on the New York Commodity Exchange (COMEX) recorded $1,956.30 per troy ounce, down 5% from last month.

Key factors influencing gold prices include the value of the dollar, inflation, and real interest rates. When inflation falls or the dollar value and real interest rates rise, gold prices tend to decline. The recent sluggish trend in gold prices is due to a reduction in downward pressure on the dollar, which has limited the rise in gold prices. Although the Federal Reserve (Fed) formalized the 'Average Inflation Targeting (AIT)' policy last month, calming the upward trend in real interest rates, the narrowing negative real interest rate gap suggests that prices are likely to remain stable for the time being. The strong desire to realize profits from the rapid short-term surge in gold prices is also considered a contributing factor. Kyeoyoon Jeon, a researcher at Hana Financial Investment, stated, “U.S. Treasury yields are rising due to bond supply and demand pressures,” and added, “The U.S. 10-year breakeven inflation rate (BEI), which reflects expected inflation, fell from 1.8% on the 31st of last month to 1.7%.”

Regarding related Exchange Traded Products (ETPs), investors who invested in inverse products over the past month have made profits. Investors who invested in the KINDEX Gold Futures Leverage Synthetic ETF expecting a rise in gold prices at the beginning of last month are estimated to have incurred a 10% loss. TIGER Gold Futures (H) (-5%) and KODEX Gold Futures (-5%) also underperformed the KOSPI, which rose 4% during the same period. Conversely, investors who anticipated a decline in gold prices during the same period and invested in the ‘Shinhan Inverse 2X Gold Futures ETN’ and ‘Shinhan Inverse Gold Futures ETN’ earned returns of 8% and 4%, respectively.

Nevertheless, positive outlooks on gold remain intact. Although volatility may increase in the short term until prices recover to the $2,000 level, gold is expected to be recognized as an inflation hedge in the medium to long term. Central banks around the world are planning unlimited liquidity supply to overcome the COVID-19 shock, and such liquidity expansion tends to stimulate concerns about currency depreciation and inflation. Songcheol Kang, a researcher at Shinhan Financial Investment, said, “In the post-COVID era, major countries are more likely to expand large-scale liquidity supply rather than reduce quantitative easing measures,” and added, “Applying the gold price level of 2011, when low benchmark interest rates persisted for a long time and inflation expectations rose, to the current situation, gold prices are expected to rise to around $2,300 in 2021-2022.”

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