As stock markets at home and abroad decline, gold, traditionally considered a safe-haven asset, is also under pressure, with prices nearing $4,000 per ounce. Gold typically attracts investment when stock markets become volatile, but the two have recently fallen in tandem.
Analysts say a combination of rising policy rates at home and abroad and global financial market instability is shifting investor interest away from gold toward cash and other liquid assets.
According to the financial investment industry and foreign media on Tuesday, international spot gold prices fell to $3,975.23 per ounce intraday on Oct. 23 (local time). This marks the first time since July that the spot gold price has dropped below $4,000.
As recently as early this year, international gold prices had risen to an all-time high of $5,586 per ounce intraday. However, after turning downward, the decline from the peak has exceeded 28%.
Although the price recovered to the $4,030-per-ounce range this week due to factors such as inflows of bargain-hunting and falling international oil prices, it continues an unstable trend around $4,000.
Domestic gold prices are also failing to escape weakness. The price of gold traded on the Korea Exchange (KRX) Gold Market has recently barely exceeded 170,000 won per gram. Compared with the closing price of 183,480 won in early this month, it has fallen by more than 7%.
The decline in gold prices is drawing attention because domestic and global stock markets are also struggling to find a clue for a rebound. The KOSPI index surpassed the 7,000 mark based on closing prices in early this month but subsequently plunged, falling into the 5,000 range. The situation is similar in U.S. stock markets.
The NASDAQ index fell from 26,871.60 in early this month to 26,169.38 on the 26th. The S&P 500 index, which briefly exceeded the 7,800 mark this month, has also recently slipped into the 7,600 range.
The market is paying attention to the fact that gold prices are falling in tandem with domestic and global stock markets, which have faced downward pressure centered on tech stocks over the past three weeks, leading to a contraction in investor sentiment.
Generally, stocks are classified as risky assets that react sensitively to economic conditions and corporate earnings. In contrast, gold has been recognized as a representative safe-haven asset sought by investors when uncertainty in financial markets expands, based on its characteristics as a physical asset and its scarcity.
This is why funds have historically moved from unstable stock markets into the relatively safer gold, driving up gold prices.
In particular, there is a tendency for investment demand for gold to expand when geopolitical risks, such as war, increase. However, recently, even amid continuing geopolitical uncertainty in the Middle East region, this has not translated into expanded investment demand for gold.
Capital market experts view the situation not as a weakening of gold’s safe-haven status, but rather as changes in the interest rate environment fueling the simultaneous weakness of stocks and gold.
While gold is used as an investment tool to respond to inflation, it does not yield interest or dividends even when held. Therefore, as market interest rates rise, its investment appeal inevitably declines compared with financial products such as government bonds and deposits that offer expected interest income.
In fact, uncertainty remains surrounding the future monetary policies of the Bank of Korea and the Federal Reserve System (Fed). In particular, rising international oil prices due to geopolitical tensions in the Middle East region are stoking inflation concerns.
As upward pressure on prices intensifies, central banks’ room for rate cuts shrinks, and the possibility of additional rate hikes may be highlighted. Such concerns are leading to higher market interest rates, which is also weighing on gold prices.
Demand for cash reserves following sharp stock market declines is also cited as a cause of falling gold prices. Investors who have incurred losses in stock investments may sell their held gold while arranging additional margin or reducing the proportion of risky assets in their portfolios.
Accordingly, funds from domestic investors are flowing into cash-like financial products. Among top ETFs (Exchange-Traded Funds) by capital inflow over the past month, the product attracting the most funds is the parking-type ETF KODEX Money Market Active, with net inflows reaching 2 trillion 432.8 billion won during this period.
This shows that demand for stable management of investment funds is growing rather than aggressive pursuit of returns, as stock market volatility expands.
A securities industry official said, “Gold can be used as an investment tool to respond to inflation in the long term, but there is a possibility of losses due to price fluctuations in the short term.”
He added, “Investment strategies that select assets with relatively small price fluctuations and expected returns based on short-term interest rates, such as parking-type ETFs, while watching market conditions are being highlighted.”
in STOCK
