Summary

  • Falling global gold prices have sent returns on South Korean gold ETFs down more than 30% from their peaks.
  • The securities industry said concerns over U.S. benchmark rate hikes have already been substantially reflected in gold prices, leaving the metal at an undervalued level.
  • Analyst Hong Sung-ki said November and December this year could be a buy-the-dip window, assuming rate hikes are completed in the first half of next year.

Forecast Trend Report by Period

Gold Prices Fall as U.S. Rate-Hike Fears Build

Central Bank Gold Buying Keeps Rising

Returns on South Korea-listed gold exchange-traded funds are tumbling as international gold prices decline. Moves toward higher U.S. benchmark interest rates are seen as one factor behind the weakness in gold prices.

According to the Korea Exchange on November 5, TIGER KRX Gold Spot closed at 11,550 won ($8.31) the previous day. That marked a 36.17% drop from this year’s January peak, when global geopolitical anxiety and expectations for U.S. rate cuts had combined to lift prices.

ACE Gold Futures Leverage (Synthetic H), which tracks twice the daily return of gold futures prices, has fallen 55.71% from its peak. Other major gold ETFs have also dropped more than 30% from their highs, including ACE KRX Gold Spot (-36.03%), SOL International Gold Covered Call Active (-33.83%) and KODEX Gold Active (-32.57%).

Fears of higher U.S. benchmark rates are cited as a main reason for the decline in gold prices. International gold prices came close to $4,700 a troy ounce in August. They turned weaker again in September and fell to $3,898.90 a troy ounce at the end of October. Geopolitical tensions in the Middle East pushed global oil prices sharply higher, stoking inflation concerns. The Federal Reserve’s increasingly hawkish stance also weighed on gold prices. Unlike bonds, gold does not generate interest income, making it less attractive when real interest rates rise.

In the securities industry, some see the recent decline in gold prices as a chance to buy on weakness. Their view is that concerns over U.S. monetary tightening have already been substantially reflected in gold prices, while demand through ETFs and steady gold buying by central banks leave ample room for a rebound over the medium to long term.

Hong Sung-ki, an analyst at LS Securities, said concerns over rate hikes have been substantially reflected in prices, leaving gold at its most undervalued level since 2022. He added that gold prices fell and then rebounded during 2022 and 2023, when the U.S. raised its benchmark rate by 5.25 percentage points. If rate hikes are completed in the first half of next year, November and December this year could be a window for buying at lower levels.

Cho Ara, Hankyung.com reporter [email protected]

Korea Economic Daily