[PB Notebook] Kim Draws Attention Again Amid Virtual Asset Decline

On the 14th (local time), the final Federal Open Market Committee (FOMC) results of this year from the U.S. Federal Reserve (Fed) were announced. As expected, the benchmark interest rate was unanimously raised by 50 basis points (1bp = 0.01 percentage points) by the committee members, bringing it to 4.25?4.5%. However, Fed Chair Jerome Powell’s monetary policy statement and the future interest rate dot plot were both unexpectedly hawkish.

The median target interest rate for 2023 on the dot plot reached 5.1%, suggesting that the benchmark rate could be raised by an additional 75 basis points or more next year. Despite this very hawkish interest rate outlook, the two-year U.S. Treasury yield, which reflects the interest rate forecast, closed at 4.2178%, down 0.05 basis points from the previous day.

Regarding this phenomenon, some analysts argue that the market no longer trusts the Fed’s statements. They claim that inflation will decline going forward and that interest rates will not rise as much as the dot plot suggests. The U.S. Consumer Price Index (CPI) for November, released a day earlier, rose by the smallest margin in 11 months since December last year, raising expectations that inflation has peaked. The core CPI, which excludes the volatile energy and food sectors, increased by 6.0% year-over-year and 0.2% month-over-month, both figures below expectations. Additionally, considering that U.S. real estate price indicators are sharply falling, housing costs?which have the largest weight in core inflation and are still soaring?are likely to decline next year. Experts also note that service prices, which tend to be sticky downward, may see weakening wage growth momentum over time as signs of deterioration in the labor market have recently been observed.

In line with this future interest rate outlook, the dollar’s strength is easing, while concerns about an economic recession are rising, increasing the relative attractiveness of gold as a safe-haven asset. If the interest rate hike cycle ends and rate cuts become visible, demand for gold as a safe-haven asset during an economic downturn is expected to rise. The recent decline in cryptocurrencies such as Bitcoin, which had been gaining attention as alternative safe-haven assets, is also enhancing gold’s investment appeal. Standard Chartered (SC), a UK-based bank, forecasted in a report that gold prices could rise by 30% to $2,250 per ounce next year as demand shifts toward stable assets during volatile periods. Furthermore, according to the World Gold Council (WGC), central banks worldwide purchased about 400 tons of gold in the third quarter of this year, a 300% increase compared to the same period last year, and are expected to continue increasing their gold holdings over the next year.

There are various ways to invest in gold. Besides investing in financial products such as ETFs and funds based on gold as the underlying asset, investors can purchase physical gold bars or open gold accounts at banks to use gold banking services. Additionally, it is possible to buy KRX Gold listed on the Korea Exchange through stock trading accounts opened at domestic securities firms.

When investing in gold, there are several precautions. Domestic gold prices are significantly influenced not only by international gold prices but also by the won-dollar exchange rate. If international gold prices rise but the won-dollar exchange rate falls more sharply, investors may incur losses. In such cases, investing in ETFs that track international gold futures rather than physical gold can be considered, as they offer the advantage of eliminating exchange rate risk through currency hedging. However, there is a downside of a 15.4% dividend income tax on trading gains, and recent indications from the U.S. government about imposing a 10% tax on sales amounts for foreign investors starting next year under the Publicly Traded Partnership (PTP) regulations suggest caution when investing in overseas commodity ETFs.

Therefore, as an alternative, it is also a good strategy to focus on stocks or investment products related to gold industrial materials and mining companies instead of investing directly in physical gold or gold futures. Unlike physical gold, which does not generate interest or dividend income, investing in gold-related companies’ stocks allows investors to receive dividends and benefit from potential gains due to rising gold prices.

Jae-min Jeong, Team Leader, Shinhan PWM Daegu Center

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