Despite concerns that the U.S. Federal Reserve (Fed) will keep monetary tightening in place for longer, global large asset managers are rebuilding the gold holdings they had cut. In Korea, as money flows into gold exchange-traded funds (ETFs) and even the Bank of Korea (BOK) moves into gold for the first time in 13 years, market interest in gold demand is growing.
According to the financial investment industry on the 14th, global asset managers are increasing their gold weight again as gold prices go through a correction.
Bloomberg recently interviewed global major managers overseeing a total of $27 trillion in assets and found that firms including Amundi, Europe's largest asset manager, as well as Pictet, Robeco, and Fidelity International have either rebuilt the gold positions they cut early this year or are maintaining a bullish outlook.
Amundi's fund managers built long positions, projecting gold prices will recover to about $5,000 per ounce by year-end. While prolonged Fed tightening and high real interest rates could weigh on gold, they judge that geopolitical risks, demand to diversify away from dollar assets, and Central Bank gold purchases can support prices over the longer term.
International gold futures traded on the New York Commodity Exchange (COMEX) hit a peak of $5,586 at the end of January this year before falling below the 4,000 level in July. After touching the 4,700 level in August, they have been catching their breath this month between the 4,300 and 4,500 levels.
Gold is a non-yielding asset that pays no interest, so its investment appeal typically falls when rates rise. The higher real interest rates go, the greater the opportunity cost of holding gold. The fact that global institutions are buying gold again during the price correction suggests they view structural demand—such as geopolitical risk and diversifying foreign exchange reserves—as more important than short-term rate variables.
The net worth of domestic gold ETFs has also shown a clear shift since the end of July.
According to the Korea Exchange (KRX), the assets under management (AUM) of ACE KRX Gold Spot, the largest gold ETF in Korea managed by Korea Investment Management, increased from 3.8441 trillion won on July 31 to 4.2995 trillion won on Aug. 25, before edging down to 3.9869 trillion won on the 10th of this month. During the same period, the AUM of TIGER KRX Gold Spot by Mirae Asset Global Investments also rose from 1.1573 trillion won to 1.2857 trillion won, then slightly decreased to 1.1870 trillion won.
The net worth of Samsung Asset Management's KODEX Gold Futures (H) steadily increased over the same period to 327.6 billion won, 372.6 billion won, and 373.6 billion won. KODEX Gold Active rose from 147.7 billion won on July 31 to 166.1 billion won on Aug. 25, then fell to 162.5 billion won on the 10th of this month.
The BOK has also emerged as a major buyer in the gold market. The BOK newly added the U.S. gold ETF SPDR Gold Trust (GLD) in the second quarter this year. As of the end of the second quarter, it held 679,765 shares, valued at about $250.41 million, or roughly 350 billion won at the then exchange rate. This is the first time since 2013 that the BOK has held a gold ETF.
Experts say demand for gold is strengthening as Central Banks continue moves to use gold as a tool to diversify dollar-centered foreign exchange reserves and respond to geopolitical risks.
Park Ju-ran, a researcher at Samsung Securities, said, "The U.S. imposition of economic sanctions on Iran confirmed that the medium- to long-term demand for reserve diversification among non-Western Central Banks remains intact," adding, "With Central Banks continuing active bargain hunting, a solid floor has formed for gold prices."
Still, the potential for short-term volatility in gold prices remains. That is because among the key supply-demand drivers of gold's rise, North American ETF flows react sensitively to U.S. monetary policy and changes in real interest rates.
Park said, "What practically drives gold's uptrend is North American ETF money, which reacts sensitively to tightening conditions and financial variables," adding, "Under concerns about Fed tightening or a high-rate environment, outflows from ETFs can at any time amplify gold's price volatility."