Gold prices are weakening as U.S. Government Bonds yields have surged on concerns over recently high oil prices and inflation. Because gold is an asset that does not pay interest, its investment appeal falls relative to bonds when yields rise.
On top of that, the strong dollar has weighed on returns for related products such as exchange-traded funds (ETFs) and exchange-traded notes (ETNs) that track spot and futures prices for gold. In the market, there is an outlook that even if gold rebounds, it will be difficult for a while to recover the previous level.
According to the New York Mercantile Exchange on the 24th, international gold futures prices fell for four straight sessions from the 14th to the 19th. They rebounded somewhat on the 20th–21st on hopes for U.S.-Iran end-of-war talks, but the price per troy ounce (1ozt=31.10g) remains around the $4,500 level.
It has been about two months since gold futures prices came down to the $4,500 level, last seen on Mar. 26. The domestic spot gold price also finished trading at 219,080 won on the 22nd, the lowest level since late March.
As gold prices decline, investment funds are flowing out of related investment products. According to Koscom ETF Check, a net 97.7 billion won left 11 ETFs tracking gold futures and spot prices over the past month. Including "HANARO Global Gold Mining Corporations," which invests in gold mining companies, more than 120 billion won in total exited gold-related ETFs.
Gold-related ETNs also saw steep declines. "KB Leverage Gold Futures," which topped 110,000 won on Mar. 11 during the early days of the Middle East war, fell to 80,560 won on the 22nd. "Samsung Leverage Gold Futures" (-29.7%), "Meritz Leverage Gold Futures" (-29.4%), and "N2 Leverage Gold Futures" (-29.3%) also showed sharp drops.
Jeon Gyu-yeon, a Hana Securities researcher, said gold prices in the first half of this year "reacted more sensitively to rates and the dollar trend than to geopolitical risks," adding that prices in the second half will also be affected by rate and dollar moves.
In the securities industry, there is a view that if the possibility of prolonged U.S. tightening and the rise in Government Bonds yields continue, a rebound in gold prices will be difficult for the time being. Minutes of the Federal Open Market Committee (FOMC) released on the 20th (local time) also showed that many members noted that if inflation consistently exceeds 2%, a certain level of "policy firming" may be necessary.
In particular, analysts say that under Federal Reserve Chair-designate Kevin Warsh, aggressive liquidity provision seen in the past will be hard to replicate. Warsh also resigned in 2011 while serving as a Fed governor, opposing quantitative easing (QE). At a U.S. Senate hearing last month, he noted that repeated use of balance sheet expansion (quantitative easing) had given excessive benefits to holders of financial assets.
Choi Jin-young, a Daishin Securities researcher, said gold stands out as a representative hedge when currency expansion erodes the value of money, and added that if the possibility of resuming QE is limited going forward, structural hedge demand for gold could weaken compared with the past. He added that a short-term rebound is possible after the end of the Middle East war, but breaking above the previous peak will be difficult.