The briefly risen gold price slides down again 'like a slide'

Gold Prices Fall More Than 5% Since the 10th of Last Month
'King Dollar' Continues... Short-Term Recovery of Gold Investment Products Difficult

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Minji Lee] The price of gold, once regarded as a safe haven in the zigzagging stock market, is falling again. Even gold, which was considered a safe asset, has plummeted like falling leaves in the face of the King Dollar (ultra-strong dollar).

According to the New York Commodity Exchange (COMEX) on the 5th, the December gold futures price stood at $1,722.60 per ounce as of the 2nd. Compared to last month's peak of $1,813.70 (on the 10th), it has dropped more than 5% in less than a month. Gold prices seemed to be on the rise from $1,678.40 on July 20 to the $1,800 level, but have been sharply declining since the beginning of this month.

The decline in gold prices is driven by the strength of the US dollar. Dollar and gold are both considered safe assets and are substitutes for each other, but as holding dollars has become more profitable for investors, demand for gold has sharply decreased. Recently, US Federal Reserve Chairman Jerome Powell has strongly signaled his commitment to high-intensity tightening, leading to the term "King Dollar." Earlier last month, expectations of a Fed rate cut caused the dollar to weaken and gold prices to rebound, but the market sentiment has now completely reversed. Additionally, concerns about economic recessions in Europe and China are fueling the dollar's strength. As views that the energy crisis will devastate Europe's economy have emerged one by one, demand for the euro has shifted to the dollar. As of the 2nd, the dollar index stood at 109.53, the highest level in nearly 20 years.

As gold prices fall, products that bet on rising prices are recording negative returns. The "KINDEX Gold Futures Leverage" ETF, which can earn twice the profit when the gold futures index rises, has recorded a -10% return since the 10th of last month. The representative global ETF tracking gold prices, "SPDR Gold Trust," also fell more than 5% during the same period.

The dollar's strength is expected to continue for the time being. In other words, it will be difficult to expect a quick turnaround in gold product returns. On the 8th, the European Central Bank (ECB) is expected to take a big step or more by raising the benchmark interest rate by 50 basis points (1bp = 0.01%P) at once, but considering Europe's fragile economic situation and uncertainties about the sustainability of future tightening, the dollar's weakness is expected to be only temporary. Choi Jemin, a researcher at Korea Investment & Securities, explained, "From a supply and demand perspective, the supply of dollars is decreasing while demand is increasing, so the pressure for dollar strength will continue."