Recently Surged 'Gold·Dollar'... Is It Okay to Invest More? [Why&Next]

Global Financial Institutions Predict Gold to Rise to $3,000 Range
Exchange Rate Hits 1,400 Won, "1,400-1,500 Won New Normal"
However, Caution Advised for New Investments

The timing of the U.S. Federal Reserve's (Fed) benchmark interest rate cut is being delayed, and with the escalation of military conflicts in the Middle East such as Hamas-Israel and Iran-Israel, safe-haven assets like gold and the dollar are gaining attention. However, frontline private bankers (PBs) advise caution for new investments, noting that gold prices are currently forming historical highs and the dollar has already recorded significant gains.

Money Flows into 'Gold', 'Dollar Deposits' Begin Profit-Taking

According to the financial sector on the 17th, the balance of gold banking (gold accounts) at three major commercial banks (KB Kookmin, Shinhan, Woori) was recorded at 600.7 billion KRW as of the 12th. This represents a 7.19% (40.3 billion KRW) increase compared to the end of March (560.4 billion KRW).

The international gold price is fluctuating while repeatedly hitting historical highs. According to Investing.com, gold futures (6-month contracts) hovered around $2,000 per troy ounce from November last year to February this year, then jumped to $2,254.80 at the end of March, and rose further to $2,374.10 as of the 12th of this month. On the 15th, it even surpassed the $2,400 mark, reaching $2,400.70.

During the same period, the gold banking balance increased by about 100 billion KRW from 510.3 billion KRW at the end of November last year to 600.7 billion KRW as of the 12th of this month. The number of accounts also rose from approximately 252,000 to 255,000. This indicates an increase in investors betting on the continued rise of gold prices.

On the other hand, dollar deposits are decreasing. The balance of dollar deposits at the four major commercial banks (KB Kookmin, Shinhan, Hana, Woori) was 49.031 billion USD as of the 12th, down 3.44% (1.749 billion USD) from 50.78 billion USD at the end of the previous month. Compared to the end of last year (56.438 billion USD), this is a decrease of 13.12% (7.47 billion USD).

During the same period, the exchange rate showed a steady upward trend. The won-dollar exchange rate was 1,289.40 KRW at the end of last year and remained relatively unchanged through January and February, but rose to 1,346.80 KRW at the end of last month and further increased to 1,363.70 KRW as of the 12th of this month. This suggests that many investors realized profits from exchange rate fluctuations.

Inverse Correlation Between Gold and Dollar... What About New Investments?

Typically, the dollar and gold have an inverse relationship. When the dollar value rises, the amount of gold that can be purchased increases, causing gold prices to fall; conversely, when the dollar value falls, the opposite relationship holds.

The dollar value continues to rise. The won-dollar exchange rate hovered around the 1,340 KRW level at the end of March but rose for seven consecutive trading days starting April 5, closing at 1,394.5 KRW on the 16th, up 10.5 KRW from the previous day. This represents an increase of about 50 KRW over seven trading days. This is the highest level in 17 months since early November 2022. The previous peak closing price was 1,423.8 KRW on November 3, 2022.

The dollar index, which measures the dollar's value against six major currencies (Euro, Yen, Pound, Canadian Dollar, Swedish Krona, Swiss Franc), also rose from 101.33 at the end of last year to 106.04 as of the 12th. This is attributed to concerns that the initially predicted two to three interest rate cuts within the year may be delayed, as well as the emergence of geopolitical risks such as military conflicts between Iran and Israel.

Recently, the Fed has been delaying the timing of interest rate cuts as key U.S. economic indicators show strength. The March Consumer Price Index (CPI) exceeded market expectations at 3.5%, and retail sales, which account for 70% of U.S. GDP, rose 1.1%, significantly surpassing the forecast of 0.4%. Global financial institutions have recently suggested that interest rate cuts may be further delayed.

Contrary to conventional wisdom, the outlook for gold prices, which are continuously hitting 'historical highs,' is expanding day by day. Goldman Sachs recently predicted that gold prices could rise to the $2,700 range this year. Bank of America (BoA) forecasted gold prices to reach the $3,000 range next year.

The financial sector sees the background of this gold price increase as a 'supply and demand' issue. Demand has increased as central banks worldwide purchased over 1,000 tons of gold last year alone to reduce dependence on the dollar, while political instability in major gold-producing regions has caused supply difficulties. Additionally, speculative fever driven by continuous price increases, Middle East conflicts, and the upcoming U.S. presidential election are also factors stimulating gold demand.

Experts advise caution when investing at this stage despite the rapid rise in safe-haven asset prices like gold and the dollar. Jung Sung-jin, Deputy Head of KB Kookmin Bank Gangnam Star PB Center, said, "Although gold prices have risen, wealthy individuals tend to view gold more as a means for inheritance and gifting rather than an immediate investment target. While there are forecasts that prices could reach $3,000, the current level is already a historical high, so I believe new investments should be approached cautiously. There are many alternative safe assets such as U.S. stocks."

Deputy Head Jung also commented on dollar deposits, saying, "The Fed appears set to maintain high interest rates for a considerable period, but the Bank of Korea is in a difficult position due to high household debt, unable to take decisive action. More experts are interpreting that the 1,400 to 1,500 KRW range will become the new normal for the won-dollar exchange rate." However, he added, "The current price is excessively high for generating profits through buying, so it is necessary to monitor the situation."

Kim Hak-su, PB Team Leader at Hana Bank Jamwon Station Branch, also said, "Both gold and the dollar have formed high prices, but this is quite an abnormal situation. Gold prices may rise further and the won-dollar exchange rate may surge in the short term, but this is a highly volatile market that could quickly normalize due to external factors such as Middle East tensions. Therefore, rather than making hasty investments, carefully observing the situation is also a good approach."