Gold Prices Fall 9.5% in Q1, 'Worst Loss in 5 Years'

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] Gold prices fell 9.5% in the first quarter of this year, marking the worst loss since 2016, according to a report by The Wall Street Journal (WSJ) on the 1st (local time).

WSJ explained that this decline in gold prices was the exact opposite of initial expectations. As COVID-19 spread, governments and central banks worldwide engaged in monetary easing, which was expected to increase inflation risks and highlight gold's appeal as a hedge investment. However, gold prices have instead fallen. This is because the rapid global economic recovery expectations due to monetary easing have outweighed concerns about inflation.

Goldman Sachs had projected the 12-month gold price at $2,300 per ounce in August last year but lowered it to $2,000 in February. Jeffrey Currie, head of Goldman Sachs' commodities research division, said, "We misjudged the forecast," adding, "The economic recovery has been much stronger than expected."

Gold prices closed the first quarter at $1,713.80 per ounce. Compared to the all-time high of $2,069.40 per ounce recorded in August last year, this represents a 17% decline. Only a few commodities recorded larger losses than gold in the first quarter, including orange juice futures, cocoa, the Turkish lira, and long-term U.S. Treasury bonds.

Gold Price Trends [Image source= Wall Street Journal]

UK hedge fund Fulcrum Asset Management halted gold investments this year. Nabil Abdulla, Deputy Chief Investment Officer (CIO), said, "Optimism about the global economy is growing, interest rates are rising, and gold's investment appeal is declining compared to other yield-bearing assets."

The strength of the dollar is also a negative factor for gold prices. When the dollar appreciates, the cost of purchasing physical assets like gold increases.

Initially, it was expected that U.S. fiscal spending would increase due to President Joe Biden's large-scale economic stimulus plan, leading to concerns about the U.S. government's fiscal deficit and a weaker dollar. However, the WSJ dollar index rose 3.1% in the first quarter. Investors responded more to expectations of U.S. economic recovery than to concerns about the fiscal deficit.

Even compared to U.S. Treasury bonds, another safe asset, gold's investment appeal is declining. Although U.S. Treasury prices are falling, making it difficult to sell now, holding them yields interest income. Moreover, Treasury yields are rising. In contrast, gold prices are falling, so it cannot be sold profitably, and holding it generates no income.

Gold-related funds have also suffered. According to FactSet Research, $7.52 billion has been withdrawn from the SPDR Gold Trust, the largest gold fund in the U.S., since the beginning of this year.

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