'Fear of R' Eyes on Gold... "Not Yet"

Gold ETF down 10% from all-time high
"Cautious until US monetary tightening is complete"

[Image source=Yonhap News]

[Asia Economy Reporter Lee Myunghwan] With concerns about an economic downturn and the current period of interest rate hikes, is now a good time to invest in gold? The answer from the securities industry is "not yet."

On the 22nd, Asia Economy examined the price trends of three gold futures index-tracking exchange-traded funds (ETFs) listed on the domestic stock market, and found that these products were trading at prices nearly 10% lower compared to their peak in early March.

The spot price of gold also showed a slight pause. On the 20th, the price of gold per 1 kg in the KRX Gold Market of the Korea Exchange closed at 76,480 KRW. This is somewhat lower compared to early March and mid-April when prices rose to the 78,000 KRW range due to the Russia-Ukraine war and unstable stock market conditions. It is interpreted that gold prices have somewhat softened amid the full-scale interest rate hike period, including the Federal Reserve's (Fed) "Giant Step" (a 0.75 percentage point rate hike at once).

The market expects the possibility of further declines in gold prices to be limited. Kiwoom Securities researcher Shim Subin analyzed, "Typically, gold prices face downward pressure during periods of rising interest rates, but despite the Fed's rate hikes, factors such as inflation and economic concerns continue to support prices, mitigating the downward pressure."

However, there is also advice to be cautious about gold investment until the Fed-led monetary tightening concludes. NH Investment & Securities researcher Hwang Byungjin said, "Under the Fed's strong tightening to curb inflation, the rise in real interest rates remains effective, making frequent short-term downward price volatility inevitable," and advised, "A neutral strategy on gold investment should be maintained until the normalization of monetary policy is complete."

It is also important to be aware that due to "rollover," discrepancies can occur between the prices of gold futures index-tracking ETFs and the spot price of gold. Rollover refers to the cost of selling the near-month futures contract at expiration and reinvesting in the next near-month contract. During this reinvestment process, the impact of rollover costs can cause differences between futures prices and the spot price of gold.