Tapering Talks Heat Up... Sell Gold and Silver

Prospect of Entering a Downturn Phase in Precious Metal Prices
Recommendation to Reduce Exposure

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Minji Lee] Following the June Federal Open Market Committee (FOMC) meeting, discussions on tapering quantitative easing have heated up faster than expected, leading to forecasts that precious metals such as gold and silver, considered safe-haven assets, will enter a long-term downward phase.

According to the Korea Exchange on the 23rd, the price per gram of 1kg gold spot in the KRX Gold Market was traded at 65,170 KRW as of the previous day. It has fallen about 5% since the beginning of this month.

Gold prices traded in the international market are also showing a downward trend. As of the previous day, July gold futures traded on the New York Commodity Exchange (COMEX) were priced at $1,776.50 per troy ounce, down 6.6% since the start of this month. Silver prices have also dropped 8% this month, standing at $25.86.

Typically, gold and silver prices fall when signals emerge that central banks may raise interest rates to control inflation. This is because investors shift to dollar investments, which are also classified as safe-haven assets, causing investment sentiment to contract sharply. At this month’s FOMC regular meeting, Fed members who had previously maintained that tapering was premature mentioned the need to discuss tapering, leading the market to weigh more heavily on early tightening.

In the securities industry, there are also forecasts that gold and silver products have entered a bearish cycle. Hwang Byung-jin, a researcher at NH Investment & Securities, said, "Due to monetary policy tightening, the bearish cycle of gold and silver prices is inevitable, from tapering to normalization of the base interest rate," adding, "There may be short-term rebound buying due to the steep decline, but future price increases should be used as selling opportunities in the precious metals sector to reduce exposure."

Accordingly, prices of products that had bet on rising gold and silver prices continue to plunge. In the domestic exchange-traded fund (ETF) market, ‘KODEX Gold Futures’ fell 7%, and ‘KINDEX Gold Futures Leverage’ also plunged about 13%. In the overseas ETF market, ‘SPDR Gold Shares’ dropped 6.5%, and ‘iShares Silver Trust’ fell 7%. The volume of sales of related products is also increasing. In the domestic market, individuals have sold 5.9 billion KRW worth of ‘KODEX Gold Futures’ and 5.8 billion KRW worth of ‘KODEX Silver Futures’ respectively since the beginning of this month.

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