Sangsangin: "Gold Becoming a Speculative Asset? No Need to Worry... Bullish Outlook Maintained"

On November 27, Sangsangin Securities dismissed market concerns that gold, traditionally considered a safe-haven asset, is losing its status and becoming more speculative and risky, as its price has recently moved in tandem with the stock market, including the S&P 500. The firm also maintained its existing outlook that gold prices will continue to rise through the end of next year.

Choi Yechan, a researcher at Sangsangin Securities, stated in a report titled "Is Gold Becoming a Speculative Asset? No Need to Worry" on November 27, "The increased correlation between gold and the stock market is the result of both assets responding simultaneously to the common macro variable of interest rate expectations. This should not be interpreted as a signal that gold's intrinsic value or its role as a safe-haven asset has been undermined."

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Choi first acknowledged the current market sentiment, noting, "It is true that in November, the daily return correlation coefficient between gold and the S&P 500 rose to around 0.6." Gold futures prices entered a period of adjustment after reaching a short-term peak in October. During the same period, the S&P 500 also underwent a peak-out correction following a rally, resulting in a significant overlap in the direction of gold and the stock market.

He said, "There is certainly room for some investors to believe that gold's safe-haven characteristics have weakened, given that gold has recently moved in a similar manner to stocks after a sharp rise. However, the story is different when looking at mid- to long-term data."

Since 2000, the price correlation coefficient between gold and the S&P 500 has reached about 0.85 due to common factors such as inflation and global economic growth. However, over the same period, the daily return (volatility) correlation coefficient converges to zero. Choi emphasized, "This clearly shows that, regardless of the fact that both have risen in the long term, they are fundamentally different assets that move based on different factors in the short term."

He identified changes in the Federal Reserve's interest rate outlook as the direct background for the recent increased similarity between stock market and gold price movements. He also noted that similar patterns were repeatedly observed in the past, such as in 2008, when the Fed initiated interest rate cuts and quantitative easing (QE), causing gold and the stock market to move in tandem.

Additionally, he assessed that the gradual increase in the correlation coefficient's low point since the COVID-19 pandemic, compared to the past, is also a result of the Fed's benchmark rate cuts and QE emerging as the most critical variables in global financial markets, making both gold and stocks highly sensitive to expectations regarding interest rates and liquidity. This is because, during periods of abundant liquidity, upward pressure is exerted across all assets, regardless of whether they are safe-haven or risk assets.

Choi analyzed, "A rise in the correlation coefficient between stocks and gold indicates that the market is focused on interest rates and liquidity, not that gold has become a risk asset like stocks." He added, "Gold will continue to serve as a safe-haven asset." He further explained, "For gold to truly transform into a risk or speculative asset, the market structure itself would need to change. This would require a dramatic surge in speculative leveraged positions in the futures and options markets beyond historical ranges, or a shift where short-term trading through financial products such as exchange-traded funds (ETFs) expands to the point that it overwhelms physical and central bank demand."

He also noted, "The pillars supporting current gold demand remain robust. Gold demand is expected to increase as a risk hedge," and advised investors, "There is no need to excessively reduce gold allocations simply because of the recent increase in correlation." He concluded, "Gold has been, is, and will continue to be one of the strongest safe-haven assets in the world," maintaining his mid- to long-term bullish outlook on gold prices.

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