Dollar Weakness and Decline in Real Interest Rates
Strengthen Safe-Haven Asset Preference Sentiment
[Asia Economy Reporter Minji Lee] As the dollar weakens and real interest rates fall, leading to a stronger preference for safe-haven assets, money is flowing into gold and silver in the exchange-traded fund (ETF) and exchange-traded note (ETN) markets.
According to the Korea Exchange on the 31st, in the ETF market, individuals have purchased approximately 4.88 million shares (about 25.5 billion KRW) of KODEX Silver Futures over the past five trading days as of the previous day. Although individuals sold about 2.5 million shares of this product over the past month, they have recently resumed buying. KODEX Gold Futures, which invests in gold, also saw an inflow of 12.7 billion KRW, and funds flowed into KINDEX Gold Futures Leverage (3.4 billion KRW), TIGER Gold Futures (1.5 billion KRW), and TIGER Gold and Silver Futures (1.3 billion KRW).
In the ETN market, the largest purchases were also in gold and silver, mainly through leveraged investments. The top two individual purchase amounts were Shinhan Leverage Silver Futures ETN (9.1 billion KRW) and Samsung Leverage Silver Futures ETN (6.2 billion KRW), with leveraged silver futures products totaling about 15.3 billion KRW purchased. These products are based on the DJCI 2X Inverse Silver TR index calculated from the S&P 500, and if the futures rise by 2%, investors can gain 4%, which is twice the increase.
Samsung Leverage Gold Futures ETN, which invests in gold, attracted 1.2 billion KRW, and Shinhan Leverage Gold Futures ETN also saw an inflow of 600 million KRW. Samsung KRX Gold Spot ETN, which tracks the gold spot index calculated by the Korea Exchange, gathered 1 billion KRW.
The background for individuals flocking to safe-haven assets lies in the weak dollar and falling real interest rates. Due to these factors, gold and silver prices have reached record highs. As of the 30th at the New York Mercantile Exchange, gold was priced at $1,942 per troy ounce, down 0.56% from the previous day, but it has risen about 9% this month. Silver surged about 31% this month alone.
Hwang Byung-jin, a researcher at NH Investment & Securities, explained, "With the U.S. Federal Reserve's (Fed) continued easing monetary policy stance, demand for assets such as gold and silver, which are safe-haven and inflation-hedge assets, has increased. Attempts to resume economic activities amid the resurgence of COVID-19 have raised expected inflation, supporting the strength of gold and silver even amid a preference for risk assets."
In the securities industry, it is expected that the upward trend in gold and silver prices will continue. Although there is a possibility of profit-taking if gold prices reach the 2,000-dollar level in the short term, the rise in safe-haven assets can continue as long as the low-interest-rate environment persists. Global investment bank Goldman Sachs has already raised its gold price forecast from $2,000 to $2,300. Baek Young-chan, a researcher at KB Securities, said, "Considering the weak dollar, lowered real interest rates, the resurgence of COVID-19, and U.S.-China tensions, gold and silver prices are expected to rise to $2,100 and $27, respectively. We believe there is sufficient room for further gains depending on additional dollar weakness and inflation."
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