Gold Losing Shine Against King Dollar... Will There Be an Opportunity Next Year?

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Investment in gold, considered a safe-haven asset, has seen somewhat diminished interest from investors amid the dominance of the US dollar. However, there is cautious speculation that gold prices may rise starting from the first half of next year, potentially bringing renewed attention to gold investment.

According to financial sources on the 15th, the balance of gold banking accounts at major commercial banks (KB Kookmin, Shinhan, Woori) stood at 527.2 billion KRW as of the 11th. This represents an increase of 7.5 billion KRW (1%) compared to the end of last month, which is relatively modest compared to the growth in dollar and yen deposits. Due to the strong dollar and yen depreciation phenomena, gold investment appears relatively subdued. A representative from a commercial bank stated, "Gold banking usually experiences slight fluctuations each month depending on the gold price," adding, "It does not show as large variations as the dollar or yen."

The international gold price peaked at $2,040.10 per ounce in early March amid the fallout from the Russia-Ukraine war and has since been on a downward trend. It dropped to $1,630.90 earlier this month but has recently been recovering. The closing price as of the previous day was $1,776.90.

Gold has traditionally been regarded as an inflation hedge asset, but with rising market interest rates, it has recently been overlooked because it does not yield significant returns. However, there are forecasts that gold prices could rise into double digits by the end of next year.

According to the US economic media CNBC, Swiss global investment bank UBS recently analyzed in a report that gold could exceed $1,900 by the end of next year. UBS projected, "Gold prices could rise about 13% by next winter."

UBS's analysis indicates that for every 1 percentage point decrease in real interest rates, gold prices tend to increase by 19%. UBS expects that the US Federal Reserve (Fed) will halt policy rate hikes early next year and that policy rates could be cut by up to 1.75 percentage points by the end of next year. UBS stated, "Although the Fed’s indication of a higher terminal rate may cause headwinds for gold prices for several months, we expect the Fed to stop tightening and adopt a dovish stance, making the current gold price weakness an opportunity for bargain buying."

However, domestic asset management experts advise caution against premature gold investment, noting that considering fees and buying/selling costs, it is difficult to earn short-term profits. Jung Sung-jin, Deputy Head of KB Kookmin Gangnam Star PB Center, said, "In the case of gold bar investment, considering VAT and other costs, prices need to rise about 20% just to break even. Gold does not pay dividends like stocks and relies solely on gold price movements," adding, "Since international gold prices are difficult to predict due to demand and supply factors, the probability of success is not high."

Kim Hak-soo, team leader at Hana Bank Apgujeong PB Center, explained, "Considering VAT and fees of about 20%, gold is not a highly preferred investment due to its low volatility. In contrast, dollar transactions have fees of about 1%, making buying and selling much more advantageous. Moreover, in a high-interest-rate era, dollar deposits yield about 5% just by holding them, whereas gold does not pay interest." He added, "However, gold exchange-traded funds (ETFs) that have emerged since last year can be traded at securities firms with low fees like stock trading, so they are recommended."

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