Gold Prices Hit Record Highs Consecutively
Gold Funds Recovering from Poor Performance Since Early Year
Recently, gold prices have been rising, breaking record highs day after day. As a result, it is expected that gold funds, which showed sluggish returns since the beginning of the year, will also experience a favorable trend.
According to financial information company FnGuide on the 11th, the weekly return of 12 gold funds with assets under management of over 1 billion KRW as of the 7th recorded 6.07%, the highest return among 46 theme funds classified by FnGuide. The year-to-date returns are also recovering. The year-to-date return of gold funds was -4.98% as of the end of January but has now recovered to -0.46%.
The turnaround in gold funds is attributed to the recent soaring gold prices. On the 7th (local time), April delivery gold futures on the New York Mercantile Exchange closed at $2,165.2 per ounce, up 0.3% from the previous session. It rose for six consecutive days, setting a new record high. Domestic gold prices are also rising. According to the Korea Exchange, the price per gram of 1 kg gold spot in the KRX gold market recently surpassed 90,000 KRW, breaking record highs day after day.
The expectation of interest rate cuts is cited as a major factor behind the recent rise in gold prices. Jeon Gyu-yeon, a researcher at Hana Securities, explained, "Since the beginning of the year, gold prices, which had been stagnant amid weakening expectations for an early interest rate cut by the U.S. Federal Reserve (Fed), began to surge in March. The U.S. ISM manufacturing index for February was 47.8, showing a weaker-than-expected trend, with both new orders and production remaining in a contraction phase. As economic indicators weakened somewhat, the perception that this was a positive signal for the Fed's rate cuts accompanied the rise in gold prices."
Fed Chair Jerome Powell appeared before the U.S. Senate Banking Committee last week and stated that the Fed would not cut rates immediately but that the time when confidence in the need for rate cuts would be established was not far off. The market interprets Powell’s remarks as dovish (favoring monetary easing) and expects the Fed to cut rates in June.
It is analyzed that buying momentum is gathering as record highs are being broken day after day. Choi Ye-chan, a researcher at Sangsangin Securities, said, "Considering the characteristics of precious metals products with low price volatility, it is interpreted that buying momentum is strongly concentrated due to expectations of breaking all-time highs."
However, since the surge is driven by expectations alone, a short-term correction is likely. Researcher Jeon said, "For gold prices to rise fundamentally, real interest rates must fall and the dollar must weaken, but both the dollar and interest rates have yet to establish a clear direction. If U.S. rate cuts begin in June, dollar weakness and real interest rate declines will be effective, but the magnitude will not be large, and concerns about a recession are limited, so it is judged that gold prices will not rise unilaterally." He added, "Gold prices are expected to maintain a firm trend until the end of the year, but current prices appear close to the upper band, so short-term correction possibilities should also be considered."
Researcher Choi also said, "Since interest rate and inflation paths and the war situation have not changed significantly, it is difficult to judge that the environment is favorable for additional short-term rises in gold prices from record highs. A short-term pullback bearish market due to overbought conditions is expected."
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