Gold price, safe haven asset, lowest in two years amid ‘super strong dollar’

Gold price, safe haven asset, lowest in two years amid ‘super strong dollar’
Gold price, safe haven asset, lowest in two years amid ‘super strong dollar’

Fed’s ‘Giant Step’ impact for the third time in a row
Gold prices fell 8.2% this year alone… 20% decline from peak
Investors are interested in US Treasuries

photo = Yonhap News

[오피니언뉴스=권상희 기자] Gold, considered a representative safe-haven asset, has been showing signs of slowing, with the recent six-month decline due to intensive tightening by the US Federal Reserve (Fed).

According to the Korea Gold Exchange on the 23rd, the purchase price of 24k pure gold is 316,500 won (including VAT), up 3,000 won from the previous day, and the selling price is 296,000 won, the same as the previous day.

According to the Wall Street Journal (WSJ) on the 22nd (local time), gold closed at $1681.10 per troy ounce. Initially, there was a forecast that the Fed would take an ‘ultra-step’ to raise interest rates by 100bps (1bp = 0.01% points) at a time, but as such predictions were wrong, gold prices rose slightly on the 21st and 22nd.

Earlier, the Federal Open Market Committee (FOMC) took a “giant step” to raise interest rates by 0.75 percentage points for the third time in a row.

Due to this ‘strong dollar’ phenomenon, the international gold price has continued to its lowest level in two years and five months since April 2020. This is because the value of the dollar and gold is usually inversely proportional to each other.

Gold price fell 8.2% this year alone

Gold prices have fallen by nearly 20% from their all-time highs recorded in August 2020, when economic uncertainty dominated the market due to the COVID-19 pandemic. It was down 8.2% from the previous year’s high of $2,069.40.

Accordingly, it is predicted that the gold price may record the largest annual decline since 2015.

Overall, gold prices are expected to decline this year. Chris Rooney, commodities strategist at RBC Capital Markets, said he expects gold to trade for an average of $1,679 this quarter.

Matt Dimitricin, Telemus’ chief investment officer (CFO) also said that if the Fed slows rate hikes, gold prices could recover to some extent over the next two years.

Wayne Gordon, a strategist at UBS Wealth Management, told Bloomberg that “gold prices could drop further down to the mid-$1500s an ounce”. I think there will be a leak,” he explained.

“Gold prices could rise again when Treasury yields get closer to peak”

Some analysts believe that gold will be in the spotlight again if countries around the world raise interest rates significantly due to the US interest rate hike. This is because, as inflation rates in major countries are at their highest in decades, investment in gold as a hedge against inflation is expected to draw attention.

“Gold is clearly a safe haven,” said Ed Moya Oanda, senior market analyst, in a statement.

“Gold has great support at the $1660 level, and if it can stabilize above that, the price could eventually move back above the $1700 level,” he added.

Interest in U.S. Treasury Bonds… “It’s an opportunity to buy gold at a low price.”

However, given the current situation, more attention is being paid to US Treasury bonds than gold. As of today, the 10-year U.S. Treasury yield stood at 3.6850%. It is the first time since April 2011 that it crossed the 3.5% level, which was considered a psychological resistance level.

Gold-related investments are also on a downward trend. According to Refinitive Reaper, a financial government company, funds from precious metal-related funds and exchange-traded funds (ETFs) have been withdrawn for the 12th consecutive week. The price of ‘SPDR Gold Shares’, an ETF that tracks gold spot prices, also fell 3.51% in the past month.

Against this background, gold trading volume is also on the decline. According to the Korea Exchange, the gold trading volume in the KRX gold market last month was 764.4 kg. This is a decrease of 30.4% compared to a month ago. This is also the lowest trading volume since December 2019 (639.9 kg).

However, some argue that now is the right time to invest when the price of gold is lower. In the future, if the Fed slows down its tightening stance and the dollar depreciates, the price of gold could rise again.

Investing in gold includes ▲purchasing real gold ▲using the gold market of the Korea Exchange ▲opening a gold account ▲purchasing a gold ETF or joining a gold fund.

Reporter Kwon Sang-hee[email protected]
Copyright © Opinion News Unauthorized reproduction and redistribution prohibited

The article is in Korean

Tags: Gold price safe haven asset lowest years super strong dollar

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