Gold and silver, long seen as representative safe assets during geopolitical crises, are falling short, sending funds from gold and silver exchange-traded funds (ETFs) to dollar ETFs. Still, experts say medium- to long-term demand for gold and silver remains solid.
According to the Korea Exchange (KRX) on the 6th, over the past month (Feb. 27–March 31), the aggregates of net worth across 11 gold and silver ETFs fell by 949.2 billion won to 8.6882 trillion won. Nearly 1 trillion won in net worth evaporated in a month.
Despite heightened geopolitical risk, gold and silver failed to play their safe asset role, souring investor sentiment. During the same period, gold futures fell 10.85% from $5,247.90 to $4,678.60, and silver futures plunged 19.69%.
Ok Ji-hoe, a researcher at Samsung Futures, said, "As the war drove up oil prices and stoked inflation fears, the dollar index and U.S. Treasury yields rose in tandem, pushing gold prices down," adding, "With gold falling when the war intensifies and rising when it eases, the formula of 'safe asset = gold' is weakening."
By contrast, as the dollar's appeal rose, funds flowed slightly into dollar-linked ETFs. Over the same period, the aggregates of net worth for five dollar ETFs, excluding inverse products among 11, increased 10.6% from 156 billion won to 172.6 billion won.
Park Woo-yeol, a researcher at Shinhan Investment & Securities, said, "Higher real interest rates have also weighed on gold prices recently, but the latest decline also reflects the dollar smile (a phenomenon where dollar preference rises when the U.S. economy is both booming and in recession)," adding, "Although instability in the Middle East raised the possibility of weakening the petrodollar system, the dollar remains the first asset sought in a crisis."
Experts expect demand for gold to continue over the medium to long term. However, they said a structural rebound in gold prices will come only when the war risk is fully resolved. Ok said, "A rebound will appear when the Strait of Hormuz opens, or even if it does not reopen but a cease-fire is reached, once the market can be assured that the war will no longer spread."
Some say that even if the war ends, a recovery back to the previous peak will be difficult. Choi Jin-young, a researcher at Daishin Securities, said, "If a final agreement is reached between the United States and Iran, we can expect a full-fledged rebound in gold," but added, "Given Chair Kevin Warsh's policy stance at the Federal Reserve and changes to margin calculation methods at CME, it will be difficult to exceed the previous peak."