'High Inflation Boosts Gold'.. ETF Returns Soar

[Asia Economy Reporter Junho Hwang] Amid market volatility caused by inflation, gold exchange-traded funds (ETFs) are recording stable returns. Gold ETFs have emerged as a new refuge from inflation.

According to the Korea Exchange on the 15th, the KINDEX Gold Spot ETF posted a return of 11.39% from the beginning of the year through the 14th. This product is the only ETF in Korea that invests in physical gold, and it had the highest trading volume (14,659,937 transactions) among gold-related ETFs during the same period. The market capitalization of this ETF was only 10.2 billion KRW at the start of the year but grew to 29.2 billion KRW as of the 14th. As more individual and institutional investors sought this ETF, the number of available units increased, expanding its market cap. Other products investing in gold futures, such as KODEX Gold Futures (9.68%), also recorded gains in the 9% range.

With rising prices, preference for safe assets increased, pushing up gold prices and boosting gold ETF returns. According to the Korea Gold Exchange, the international gold price rose 8.07% as of the 14th compared to the start of the year. The KINDEX Gold Spot ETF uses a KRW-converted index, so in addition to the increase in gold value, it also benefits from the rise in the dollar value, resulting in higher returns.

As inflation continues, demand for gold ETFs is expected to grow further. Jung Sung-in, head of ETF Strategy at Korea Investment Trust Management, stated, "Gold has a positive correlation with expected inflation as a hedge against rising prices, while it has a negative correlation with real interest rates as a non-interest-bearing asset." The recently released U.S. Consumer Price Index for March rose 8.5% year-on-year, marking the highest level in 40 years.

However, rising interest rates and the potential shift to weaker inflation could pose challenges. Jeon Gyu-yeon, a researcher at Hana Financial Investment, said, "If real interest rates rise, gold's advantage in terms of opportunity cost is expected to weaken," but added, "The buying sentiment for safe assets remains valid, and speculative buying of gold futures is also strong."

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