“Gold price” hits record highs on Middle East crisis and US interest rate cut expectations. “Money flocks” to ETFs...

[Korea Financial Times, Jeon HanSin] International gold prices are soaring amid rising geopolitical risks in the Middle East and expectations that the U.S. Federal Reserve (Fed) will cut interest rates in September. Yields on gold-related exchange traded funds (ETFs) have also risen, attracting investors seeking safe haven assets.

According to the Korea Exchange (KRX, Chairman Jung Eun-bo) on the 20th, the price per gram of 1kg of spot gold in the KRX gold market closed at 108,330 won, up 0.14% from the previous trading day (108,330 won). Gold prices have risen 25.47% since the beginning of the year and are set to re-break through the 110,000 won mark, the highest price ever recorded on April 16.

Gold prices are also strong in international markets. On the New York Mercantile Exchange (COMEX), December gold settled at $2541.3 an ounce, up $3.5, or 0.1%, from the previous session. On the day, gold prices are down $0.7, or -0.03%, at $2540.6, holding above the $2540 level.
Major foreign media, including Reuters and Bloomberg News, said the spot price of gold jumped to 2509.65 dollars per ounce on the 16th, surpassing 2,500 dollars for the first time in history. As a result, the price of a standard gold bar also exceeded 1 million dollars for the first time. Standard gold bullion, which is mainly used by central banks in each country to hold spot gold, is generally made around 400 ounces per piece.

The background of such a strong trend in gold prices is due to rising geopolitical risks in the Middle East and uncertainties over the U.S. presidential election in November, which have increased preference for safe assets and expectations that the U.S. Fed will cut its key interest rate in September. Usually, when the interest rate on gold is lowered, the opportunity cost of holding it decreases, increasing the attractiveness of investment.

As a result, funds are also flocking to domestic gold-related ETFs. According to Koscom ETF Check, 41.5 billion won worth of funds has flowed into ACE KRX Gold Spot in the last month of Korea Investment Trust Management (CEO Bae Jae-kyu). This is the largest amount among 24 raw material ETFs listed on the domestic stock market.

"The inflow of funds from raw material ETFs is accelerating in the domestic ETF market," said an investment strategy team at Hanwha Investment & Securities Research Center. "In particular, the inflow of funds into ETFs that invest in gold continues as gold prices continue to rise due to the weak dollar due to expectations for a recent rate cut."

Gold-related ETFs have posted good returns during the same period. Hantu Management's ACE gold futures leverage (synthetic H) rose 5.38% in the past month, while ▲ KODEX gold futures (H) 3.11% ▲ TIGER gold futures (H) 2.81% ▲ TIGER gold futures (H) 1.5% ▲ ACE KRX gold futures (H) 0.1% is also on a rightward curve. On the other hand, the KODEX gold futures bus (H), which follows the gold index in the reverse direction, fell 2.52% alone.

Experts believe that gold prices will remain on the rise. "Gold prices could reach $2,600 an ounce by the end of the year," said Giovanni Staunovo, an analyst at UBS. "All attention will be paid to U.S. Fed Chairman Jerome Powell's imminent sign of a rate cut."

"While precious metal prices are approaching an all-time high, precious metal prices will rise further in the second half of this year in line with seasonal trends," said visual CEO Huh Se-il. "Investment funds will continue to flow into the gold market in anticipation of a rate cut within the year."

Jeon HanSin (pocha@fntimes.com)