[Safe Asset Chronicles] ① Dollar Deposits Stretch Amid Yom Kippur War... Gold Accounts Fail to Shine

As a result of the war between Israel and the Palestinian armed group Hamas, two safe-haven assets, the dollar and gold, are showing different trends. While dollar deposits, which had been declining throughout the year, have seen a sharp increase since last month, gold banking (gold accounts) balances appear to be stagnating.

According to the financial sector on the 13th, the dollar deposit balance of the four major commercial banks (KB Kookmin, Shinhan, Hana, Woori) as of the 9th was recorded at $55.7 billion. This is an increase of 5.9% ($3.1 billion) compared to the end of last month, ten days earlier, and a 16.8% ($8 billion) increase compared to the year’s low point in September.

This year, dollar deposits at the four major banks recorded $61.2 billion in January, followed by $56.1 billion in February, $56.5 billion in March, $51.9 billion in April, $54.4 billion in May, $57.4 billion in June, and $55.2 billion in July, showing no significant differences. However, in September, sales for profit-taking continued, reducing the balance to $47.7 billion.

A commercial bank official explained, "Unlike last year when the won-dollar exchange rate exceeded 1,400 won, this year the peak was 1,360 won, and it has since hovered around the 1,350 won level. Investors perceived this as a peak and sold off to realize profits."

However, since the outbreak of the Israel-Palestine war in mid-October, dollar deposits have been rebounding. As tensions in the Middle East worsened, concerns about potential impacts on oil prices spread, leading to a 10.1% increase in October to $52.6 billion compared to the previous month, and a further 5.9% increase to $55.7 billion within just nine days this month.

Whether this trend will continue remains uncertain. Although the geopolitical risk of the Israel-Palestine war persists, a weak dollar environment is simultaneously developing. First, signals of the end of tightening are emerging, centered on the U.S. Federal Reserve (Fed). At this month’s Federal Open Market Committee (FOMC) meeting, the Fed kept interest rates steady, and Fed Chair Jerome Powell’s "less hawkish" remarks have raised expectations for the end of tightening.

In particular, recent U.S. employment data falling short of expectations has continued to weaken the dollar. Nonfarm payrolls in the U.S. for October increased by 150,000 compared to the previous month, below the expert forecast of 180,000. This figure is also significantly lower than the previous month’s 297,000 and the recent 12-month average of 258,000. As the employment market cools more than expected, expectations for the end of tightening are growing. According to the Bank of Korea, the won-dollar exchange rate was 1,305.50 won as of the 9th, down 47.30 won from the end of the previous month.

Experts explain that there are many factors likely to cause a weak dollar phenomenon going forward, such as the U.S. economic downturn and Korea’s export recovery, so a cautious approach to dollar investments is required. Heo Do-kyung, team leader of the PWM Mokdong Center PB Center at Shinhan Bank, said, "From the end of the year, the U.S. economy is likely to experience some recession, and domestic exports are expected to continue recovering, so the won-dollar exchange rate is expected to hover around 1,280 to 1,300 won. As expectations grow that the Fed will finish tightening, the weak dollar trend is likely to continue for the time being."

Unlike dollar deposits, gold has not been shining. The gold banking balance of the three commercial banks handling gold banking (KB Kookmin, Shinhan, Woori) was recorded at 499.7 billion won as of the 7th. This is a decrease of 20 billion won compared to just a week ago at the end of last month (519.7 billion won) and a decrease of 77 billion won compared to the year’s high point at the end of August (576.7 billion won).

The international gold price, which once surpassed $2,000 per troy ounce in May, fell to around $1,800 at the beginning of last month but has risen again above $1,900 since the Israel-Palestine war began. According to the New York Mercantile Exchange, the international gold price reached $1,969.80 per troy ounce as of the previous day.

A financial sector official said, "Geopolitical issues such as the Russia-Ukraine war and the Israel-Hamas war remain, supporting the floor for gold demand, but since gold prices are already at historically high levels, there is not much room for further increase. Next year, depending on issues, prices are likely to hover between $1,800 and $2,100, and it is difficult to expect large profits."