[Click eStock] "Gold Price, Possibility of 'Short-Term Correction' Amid Mid- to Long-Term Upward Trend Outlook"

Although factors such as geopolitical risks and production costs suggest a mid- to long-term upward trend in gold prices, securities analysts have advised preparing for short-term corrections given the rapid price increase at the current stage.

On the 28th, Suyeon Park, a researcher at Meritz Securities, stated, "Gold prices surpassed $2,500 per ounce this month, reaching an all-time high. Although it is a safe-haven asset, it has posted the highest returns among major asset classes this year," but added, "The problem is the price burden. At the beginning of 2020, when COVID-19 was spreading, the price was $1,600 per ounce, so it has already risen by about 60%."

Gold prices have confirmed sustaining factors from both demand and supply perspectives in the mid to long term. First, gold demand can be broadly categorized into ▲jewelry ▲investment ▲central banks ▲industrial use. The recent rise in gold prices is driven by investment and central bank purchases. Above all, the financial market environment is favorable for gold investment. Researcher Park noted, "As a safe-haven asset, demand tends to increase as geopolitical risks grow," adding, "Since the COVID-19 pandemic, supply chain fragmentation has intensified, maintaining gold's appeal amid macroeconomic uncertainties."

The expectation of interest rate cuts by the U.S. Federal Reserve (Fed) has also influenced the rise in gold prices. Park explained, "Generally, the dollar and real interest rates have an inverse relationship with gold prices. When the dollar depreciates, gold prices denominated in dollars rise," and "Because gold does not generate interest income, gold prices usually increase when interest rates are low." However, due to the soaring gold prices, current consumption of gold jewelry is shrinking.

On the supply side, the quality of newly mined gold has declined, and production costs have increased. Park said, "The rise in mining costs has increased the downward rigidity of gold prices, and gold prices have risen enough to secure profitability even when mining lower-grade gold," adding, "Global gold reserves increased last year. This is believed to be because gold mines that were previously not mined due to low quality have gained economic value with the rise in gold prices."

He added, "The rapid rise in gold prices in the short term is a burden. Demand for gold jewelry has already declined, and non-commercial net buying positions are increasing toward historical highs," and "Expectations for Fed interest rate cuts are also excessive. Considering the outlook that the U.S. economy is not in recession, interest rates may rise after the September Federal Open Market Committee (FOMC) meeting as expectations are adjusted."

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