Gold Prices Dropping... Is It a Good Time to Buy Now?

Impact of Rising US Treasury Yields and Digital Gold Rally
Year-to-Date Return at -5.07%, Underperforming
Despite Undervalued Range, Exercise Caution in Buying

[Asia Economy Reporter Park Jihwan] The price of gold, considered a representative safe-haven asset, has been declining continuously. This is analyzed to be due to the rising preference for risk assets as COVID-19 vaccinations accelerate and the sharp increase in U.S. Treasury yields.

According to the Korea Exchange on the 4th, the gold price per gram closed at 62,410 KRW the previous day. After hitting this year's lowest price of 63,030 KRW on the 19th of last month, it showed a brief recovery before declining again. Compared to the peak recorded on August 7 last year at 78,440 KRW, it has fallen by 20.44%. The year-to-date return is also poor at -5.07%.

As gold prices continue to decline, gold-related investment products have not been able to avoid poor returns. The price of ‘KODEX Gold Futures (H)’ managed by Samsung Asset Management fell 8.70% from 12,925 KRW at the end of last year to 11,800 KRW as of the previous day's close. During the same period, Korea Investment Trust Management’s ‘KINDEX Gold Futures Leverage (Synthetic H)’ and Mirae Asset Management’s ‘TIGER Gold Futures (H)’ also showed negative returns of -16.6% and -8.45%, respectively.

The main reason for the weak gold price is the rise in U.S. Treasury yields. The U.S. 10-year Treasury yield, which hit a historic low of 0.51% in August last year, surpassed 1.6% intraday last week. Although it dropped to the 1.4% range this week, the market does not rule out the possibility of yields rising again as economic recovery gains momentum. Since gold does not pay interest, its price tends to fall when yields rise, reducing its investment appeal. Additionally, the rise in the value of virtual assets, including Bitcoin, often called digital gold, is also contributing to the decline in gold prices. Bitcoin surpassed $50,000 for the first time on the 16th of last month and has continued its rapid rise since then.

Experts say that although gold is currently undervalued, a cautious approach to actual buying is necessary for the time being. Jeon Gyu-yeon, a researcher at Hana Financial Investment, said, "Gold has less volatility than other assets, so a strategy of holding some during price corrections is still valid," adding, "However, since interest rates have recently changed rapidly, it seems necessary to adopt a wait-and-see strategy until the pace of rate increases slows down."

Choi Jin-young, a researcher at Ebest Investment & Securities, also advised, "Technically, gold is indeed in an excessively undervalued range now, but it is necessary to observe the rebound trend of interest rates at least until the end of this month."