Safe-haven Asset Gold, Will It Rise Further in the Second Half?

Strong Role of Safe Assets in First Half
12 Gold Funds Yield 17.1%
Gold Prices Near All-Time High Due to COVID-19 and Liquidity Expansion
Uptrend Expected to Continue in Second Half

[Asia Economy Reporter Song Hwajeong] As the volatility of the stock market expanded in the first half of the year due to the novel coronavirus infection (COVID-19) crisis, gold has clearly played the role of a safe-haven asset. With concerns about the resurgence of COVID-19 growing and market volatility expected to persist in the second half of the year, gold prices are also forecasted to continue their upward trend.

According to financial information provider FnGuide on the 2nd, as of the 30th of last month, the year-to-date return of 12 domestic gold funds with assets under management of over 1 billion KRW recorded 17.1%. This is the second highest return among 43 theme funds, following healthcare funds (20.38%). The one-year return was 26.69%, the highest among theme funds. Gold has consistently recorded stable returns as a safe-haven asset. Since the beginning of the year, 14.4 billion KRW has flowed into these funds.

By product, the Korea Investment KINDEX Gold Futures Leverage Special Asset Listed Index Investment Trust (Gold-Derivative Type) (Synthetic H) posted a year-to-date return of 29.8%, BlackRock World Gold Securities Investment Trust (Stock-Subfund Type) (UH)(A-e) 29.77%, IBK Gold Mining Securities Investment Trust 1 [Stock] Type A-e 24.57%, and Shinhan BNPP Gold Securities Investment Trust 1 [Stock] (Type A-e) 19.85%.

The high returns of gold funds are due to the continuous rise in gold prices. International gold prices closed at $1,800.5 per ounce on the 30th of last month, surpassing $1,800 per ounce for the first time in about nine years. This is the highest level since August 2011, when it reached $1,891.9. Gold prices have risen about 16% this year. Min Byung-gyu, a researcher at Yuanta Securities, analyzed, "The risk-averse sentiment caused by the spread of COVID-19 and the decline in bond yields leading to a decrease in currency value have driven the rise in gold prices."

As gold prices approach record highs, interest in future trends is increasing. Researcher Min explained, "According to Bloomberg, the consensus for gold prices in the second half of the year is around $1,700, as it is expected that risk-averse sentiment will weaken after COVID-19 passes its peak and bond yields have confirmed their bottom."

Although the consensus is conservative, gold prices are expected to remain strong in the second half of the year. Concerns about the resurgence of COVID-19 are growing, and global liquidity expansion is still ongoing. Kim Sohyun, a researcher at Daishin Securities, said, "Given the high uncertainty due to COVID-19 and the rapid large-scale expansion of global liquidity, there is a high possibility of further price increases. The holdings of gold exchange-traded funds (ETFs) have reached historic highs, and gold coin investments in the first quarter increased by 36% year-on-year due to increased demand for safe-haven assets from non-Asian investors. Even if COVID-19 subsides, the weakening pressure on the dollar will support gold prices in the future."

Inflation is also expected to support further increases in gold prices. Researcher Min said, "The U.S. Federal Reserve is supplying liquidity at an unprecedented pace, and the current broad money supply (M2) growth rate in the U.S. is 23.1%, the highest level since statistics began in 1960. The possibility of a decline in cash value due to rapid inflation will be a factor driving further price increases in gold."

There are also forecasts that gold prices could surpass the $1,900 level after breaking through $1,800. Researcher Min predicted, "Gold prices in the second half of the year will attempt to break through the all-time high of $1,900." Researcher Kim also expected, "Gold prices could reach record highs in a short period, and are forecasted to move between $1,580 and $1,900 per ounce in the second half of the year."