Gold Prices Stall Around 5,000 Dollars After Plunge..."Rise Expected After Correction"

After soaring to 5,600 dollars per troy ounce (31.1g), international gold prices plunged to 4,400 dollars before stalling in the 4,900-5,100 dollar range last week (February 9-14). After the surge, profit-taking sales and the nomination of Kevin Warsh as a candidate for Chair of the U.S. Federal Reserve (Fed) triggered a short-term correction, while the delay in interest rate cuts, a stronger dollar, and tighter margin requirements have all weighed on further gains in gold. However, as the long-term trend toward lower interest rates and the preference for safe assets remain intact, some are forecasting that gold will continue to rise this year.

According to Investing.com on the 15th, the gold price, which climbed to 5,595 dollars per troy ounce on January 29, was trading around the 5,000?dollar level as of February 14. This means it fell by nearly 600 dollars in just 16 days.

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Buoyed by concerns over possible U.S. airstrikes on Iran and gold purchases by major central banks, gold prices had surged before plunging to 4,404 dollars on February 2. On January 30, U.S. President Donald Trump nominated former Fed Governor Warsh, known to be relatively less dovish, as the next Chair, and on the same day the Chicago Mercantile Exchange (CME) announced tighter margin requirements for precious metals futures, which together fueled further selling.

Just one day after the sharp drop, on February 3, as the margin call shock subsided, gold rebounded to 4,994 dollars, and on the 4th it even spiked intraday to 5,092 dollars. Since then, gold prices have been fluctuating within the 4,900-5,100 dollar range.

Market participants note that, after the sharp decline, speculative capital from China and leveraged funds from Western markets moved in, prompting a bargain-hunting rebound. However, given the continued volatility in global political and economic conditions, a steep rally like those seen last year and in January this year has yet to materialize.

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In the domestic market as well, investors’ enthusiasm for gold has recently waned. As of the end of January, the combined gold banking balances at three major commercial banks (KB Kookmin Bank, Shinhan Bank, and Woori Bank) stood at 2.4376 trillion won, but by February 12 they had fallen by 61.8 billion won to 2.3758 trillion won. Although net inflows into the two largest domestic gold exchange-traded funds (ETFs) by net assets, ACE KRX Gold Spot (491.3 billion won) and TIGER KRX Gold Spot (148.48 billion won), are still continuing, they have decreased significantly compared with the first week of February.

There is a stronger preference for relatively safer spot gold over gold futures. In the first week of February (2-6), ACE KRX Gold Spot and TIGER KRX Gold Spot attracted net inflows of 143.5 billion won and 78.4 billion won, respectively, but in the second week (9-12) net inflows shrank to 29.4 billion won and 15.9 billion won. In contrast, KODEX Gold Futures (H) saw a net inflow of 10.7 billion won in the first week of February, but 8.7 billion won flowed out in the second week. TIGER Gold Futures (H) recorded net outflows of 4.5 billion won and 1.5 billion won over the same periods, respectively.

Experts generally assess that the likelihood of gold prices plunging back to previous levels is low. International investment banks JP Morgan and Bank of America forecast that gold will reach 6,000 dollars per ounce within the next few months, while Goldman Sachs projects 5,400 dollars. Although the probability of a Fed benchmark rate cut in March is currently low, there is still strong expectation that rates will be cut sometime this year.

In addition, central banks around the world are expanding their gold purchases this year, and rising industrial demand for gold (which accounts for 7-10 percent of total demand) driven by the growth of the artificial intelligence (AI) industry remains a bullish factor.

Moon Junghee, Chief Economist at KB Kookmin Bank, said, "Since President Trump took office, many countries have been increasing the share of gold as a safe asset relative to the dollar. Given the prevailing view that the Fed will cut interest rates this year, gold prices will eventually rise." She added, however, "The U.S. Treasury yield-cutting cycle is nearing its end, and many expect U.S. Treasury yields to rise in the second half of the year, so it will be difficult for gold to climb as much as it did last year."

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