Adjusted Gold, Check the Bottom Before Investing

[Asia Economy Reporter Song Hwajeong] As gold prices show weakness, it is expected that downward pressure will continue if the interest rate rising trend persists.

According to Hana Financial Investment on the 13th, gold prices, which stayed around $1900 per ounce at the beginning of the year, recorded a low of $1673.3 per ounce on the 8th, returning to the level seen in June of last year. This weakness in gold prices is due to rising interest rates. Jeon Gyuyun, a researcher at Hana Financial Investment, explained, "Long-term interest rates have risen faster than expected inflation," adding, "Gold has a positive correlation with expected inflation as a hedge against price increases, but since it is a non-interest-bearing asset, it has an inverse correlation with interest rates."

Therefore, to gauge the direction of gold prices, it is necessary to monitor the real interest rate, which shows the relative speed of increase between these two indicators. The 10-year expected inflation rate (BEI) rose to 2.24% in mid-February and then showed a slight decline, while during the same period, the 10-year U.S. Treasury yield rose from 1.29% to a high of 1.61%. As the real interest rate rose, gold prices fell, and if the real interest rate continues to rise, downward pressure on gold prices may persist.

Researcher Jeon said, "Estimating the appropriate gold price through a regression formula between gold prices and real interest rates since 2010 suggests a level of around $1688," adding, "Assuming the rapid rise in long-term interest rates continues and the negative margin of the real interest rate narrows to about 0.4%, the support level for gold prices would be around $1600. Gold prices are expected to be supported near $1600 per ounce."

The somewhat strong trend of the U.S. dollar also limits gold prices. When the dollar is in a weak trend, gold prices usually rise, but currently, the U.S. dollar has strengthened reflecting reflation expectations, weakening gold's relative appeal. Researcher Jeon said, "With rising real interest rates and a strong U.S. dollar increasing downward pressure on gold prices, we recommend a strategy of entering gold purchases after confirming the bottom for the time being."

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