Gold Price Drops to 60,000 Won Range After About 70 Days

Decline Amid Increased Financial Market Volatility and Strong US Dollar
Silver Prices Also Fluctuate Amid Fears of a Sharp Market Crash

[Asia Economy Reporters Koh Hyung-kwang and Koo Eun-mo] As concerns over the resurgence of the novel coronavirus infection (COVID-19) increase, volatility in the financial markets has expanded and the dollar has turned strong, causing precious metal prices such as gold and silver to plummet rapidly.

According to the Korea Exchange on the 25th, the price of 1 gram of gold traded on the KRX Gold Market closed at 69,800 won, down 0.71% (500 won) from the previous day. Gold prices have fallen for seven consecutive trading days recently, dropping 6.9% this month, and the closing price falling to the 60,000 won range is the first time in about 70 days since July 13.

Precious metal prices, including gold, also continued to decline in overseas markets. According to Bloomberg, on the previous day (local time), gold prices on the New York Commodity Exchange (COMEX) closed at $1,857.00 per troy ounce, down 0.6%, and silver prices closed at $22.61, down 2.2%. Gold prices have fallen 6.2% this month, while silver prices have plunged 21.1%.

As precious metal prices fall, stocks linked to precious metal prices have also fluctuated sharply. TIGER Gold Futures (H) fell 2.47% the previous day and has dropped 21.2% this month up to the previous day. During the same period, KODEX Silver Futures (H) and Shinhan Silver Futures ETN (H) also fell 21.2% and 21.0%, respectively, significantly underperforming the KOSPI return (-2.3%). On the other hand, inverse stocks betting on price declines, such as Samsung Inverse 2X Silver Futures ETN (H) and Shinhan Inverse 2X Silver Futures ETN (H), rose sharply by 52.7% and 52.6%, respectively.

The recent sharp drop in precious metal prices is interpreted as being caused by a large influx of profit-taking sales by investors as the dollar value sharply turned upward. COVID-19 is spreading again mainly in Europe, raising the possibility of economic re-lockdowns, and discord over additional stimulus package agreements in the U.S. Congress is expanding concerns about the recurrence of global economic deflation.

However, the recent strong dollar phenomenon is not explained as a result of safe-haven asset preference. Hwang Byung-jin, a researcher at NH Investment & Securities, analyzed, "The current sharp rise in the dollar index is caused by investor cashing demand similar to March rather than safe-haven preference, as it is not accompanied by strength in U.S. Treasury bonds, Japanese yen, Swiss franc, or precious metals." The dollar index, which was around 92 points earlier this month, rose to 94.3 points the previous day.

The larger decline in silver prices compared to gold is also due to reduced inflation hedge demand amid short-term deflation fears. Silver’s relatively high industrial demand, such as in manufacturing, is also cited as a reason for greater price fluctuations during periods of high financial market volatility.

It is analyzed that whether the weakness in precious metals will continue requires further observation. In the mid-to-long term, expansion of liquidity supply is inevitable. Researcher Hwang said, "The precious metals sector is a representative inflation hedge asset," and added, "As long as the global monetary easing stance led by the U.S. Federal Reserve (Fed), which announced an average inflation targeting policy at the September Federal Open Market Committee (FOMC), is maintained, concerns about the precious metals sector having passed its peak are premature." Kim So-hyun, a researcher at Daishin Securities, also said, "From a long-term perspective, the dollar is expected to weaken, and real interest rates are also expected to decline, so investment in precious metals is viewed positively."

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