Gold Prices 'Plummet' Faded Gold Funds

Year-to-Date Return -10.23%
261 Billion KRW Withdrawn from Fund Size

[Asia Economy Reporter Song Hwajeong] As gold prices have fallen to their lowest level in six months, gold funds are also recording poor returns.

According to financial information company FnGuide on the 30th, the year-to-date return of 12 gold funds with assets under management of over 1 billion KRW was -10.23%, the lowest among 46 theme funds. Gold funds were the only ones to record a double-digit decline. Assets under management are also decreasing, with 26.1 billion KRW withdrawn since the beginning of the year.

At the same time last year, gold funds had a year-to-date return close to 24%. Net assets exceeded 600 billion KRW but have now decreased to 529.7 billion KRW. The poor performance of gold funds, which soared last year, is due to the weak gold prices. On the 28th (local time), December gold futures on the New York Mercantile Exchange closed at $1,721.50 per troy ounce, down $14.40 (0.82%). This is the lowest closing price since March 31. Gold prices have been on a downward trend since reaching an all-time high of over $2,000 per troy ounce in early August last year. Prices fell to the 1,600-dollar range by the end of March this year, then seemed to recover to around 1,900 dollars in June, but turned weak again due to concerns over U.S. tapering (asset purchase reduction).

As gold prices continue to fall, there is analysis that gold has entered a long-term bearish cycle. According to NH Investment & Securities, the rise in nominal interest rates due to an increase in real interest rates is the biggest risk factor for gold and silver prices, which are safe-haven and inflation-hedge assets. Researcher Hwang Byungjin of NH Investment & Securities said, "The rise in nominal interest rates leads to a decline in demand for safe-haven assets, and the increase in real interest rates due to the Federal Reserve's monetary policy 'tightening' also hinders inflation-hedge demand." He added, "Since the Jackson Hole Symposium in August, renewed caution over Fed monetary policy tightening has restrained attempts at a rebound in the precious metals sector, and if tapering is concretized at the remaining Federal Open Market Committee (FOMC) meetings in the second half of the year, downward pressure on the precious metals sector will become more visible." The rise in U.S. Treasury yields, i.e., nominal interest rates, weakens the attractiveness of gold investment by causing Treasury prices to fall and reducing demand for safe-haven assets. If the Fed's tapering policy is concretized in the future, normalization of real interest rates reflecting monetary tightening is expected. Accordingly, gold prices are forecast to fall below $1,700 in the fourth quarter. Researcher Hwang said, "In the fourth quarter, amid the Fed's shift to a tightening monetary policy stance, there will be neither safe-haven preference nor inflation-hedge demand," adding, "Gold prices in the fourth quarter are expected to move within the range of $1,600 to $1,800."

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