Gold prices have fallen nearly 10% over the past month, cutting the value of holdings for investors in South Korea. A stronger dollar and rising Treasury yields, driven by expectations of further U.S. rate increases, have weakened the metal's momentum.
Gold Falls to 183,000-Won Range From Above 200,000 a Month Ago
Gold with 99.99% purity closed at 183,940 won per gram on the KRX gold market on the 28th, according to the Korea Exchange. That is 19,070 won, or 9.4%, below the closing price of 203,010 won on Aug. 28. An investment of 10 million won in domestic gold a month ago would now be worth about 9.06 million won on a simple valuation basis.
Global markets showed a similar trend. Spot gold fell as low as $4,110.55 an ounce during trading on the 28th, its weakest level in about seven weeks, or since Aug. 5. The intraday decline reached as much as 4%, and the metal settled at $4,136.81, down 3.61% from the previous session.
As recently as Aug. 28, spot gold traded above $4,500 an ounce, while gold on the KRX market topped 200,000 won per gram.
Rising Rates and a Firmer Dollar Pressure Gold
Behind the recent decline are expectations of further monetary tightening in the United States. Rising oil prices have renewed inflation pressure, strengthening views that the Federal Reserve could raise its benchmark rate again.
Higher U.S. Treasury yields and a stronger dollar also create an unfavorable environment for gold. Because gold pays no interest, its relative appeal can diminish against assets such as bonds when market rates rise. A stronger dollar also increases the cost of buying gold for investors using other currencies.
Investors in South Korea need to watch the won-dollar exchange rate as well. Spot gold is priced in dollars, but gold on the KRX market trades in won, so currency swings add another layer of influence on domestic prices.
Money Still Flows Into Gold ETFs Despite Price Drop
The price correction has not dampened investment demand. Global gold exchange-traded funds drew a net $18 billion in August, the second-largest monthly inflow on record, according to the World Gold Council. Holdings in gold ETFs rose 121 tons to an all-time high of 4,189 tons.
The outlook for gold will hinge on U.S. monetary policy and the economy. Growing expectations of rate increases could add downward pressure, while economic uncertainty and geopolitical risks may support demand for safe-haven assets.
Hwang Byung-jin, an analyst at NH Investment & Securities, said in a report that while uncertainty surrounding oil prices remains, inflation concerns are expected to ease gradually from March next year. Unlike in the first half of this year, pressure for a further rise in short-term real rates is limited, the analyst said, adding that net inflows are continuing into the physical holdings of gold exchange-traded products. The analyst maintained a forecast that gold will reclaim the $5,000-an-ounce level within this year.
