Betrayal of safe assets? Fall in prices of gold, dollar and bonds

Choi, 41, who invested more than 80 million won in the gold fund last August, slept through the night. This is because the price of gold has dropped every day and has lost almost 15 million won in a month or two. Choi said: “I invested after hearing that the price of gold will continue to rise until next year, but I’m sorry that I felt like I got on the last car. The loss is so great that I can’t sell it and it stress is so bad that I will forget it for the time being. ”

Is it a betrayal of safe assets? The prices of gold, the dollar and government bonds, which had reached high levels this year, are plummeting. On the 30th, the price per gram of gold (based on the closing price) in the Korea Exchange (KRX) gold market was 62,970 won, a drop of 21.4% from the July peak. Due to the spread of the novel coronavirus infection (Corona 19) and the huge “ money release ” of the major countries, it rose to 8,100 won on July 28 and increased by more than 41% since the start of the year, but has since gone downhill. International gold prices were similar. On the New York Merchandise Exchange on the 27th (local time), the price of gold for delivery in February next year was trading at $ 1788.1 an ounce, the lowest in four and a half months. Compared to its highest level on August 6 ($ 2069.4 an ounce), it fell 13.6%.

Investors who confessed to their overdue extra money have become oblivious to capital. According to F & Guide, a financial information firm, the rate of return of 12 domestic gold funds in the last month starting at 27 was -4.4%. The 3-month return was worse at -9.4%. In particular, the 3-month return of the ‘Black Rock World Gold’ fund recorded a -15%.

It’s not just gold that sounds “diabolical”. The dollar value, the representative price of safe assets, is also falling. The dollar index, which shows the value of the dollar against the world’s six major currencies, fell from 102.8 in March of this year to 91.8 on the 27th. The win is strong against the dollar. On March 19th, the won per dollar went from 1285.7 won to 180 won in just eight months (the exchange rate dropped). As the dollar got cheaper, investors began “buying a dollar” and, in November, the domestic dollar deposit balance rose to its highest level ever.

The money is also ending up in the bond market, where there was a lot of money. The 3-year Treasury bond rate hit an all-time low of 0.795% a year on August 5, but climbed to 0.983% a year on the 30th of this month. For bonds, interest rates and prices move in opposite directions. The rise in the yield on treasury bonds means that bond prices have weakened.

The reason the safe asset has lost face is because the bad news surrounding the stock market is gradually disappearing. This year has been a year of great uncertainty due to Corona 19, the US-China trade war, and the US presidential election. However, with the end of the US presidential election, political uncertainty disappeared and news that development of a Corona 19 vaccine was about to end raised expectations for an economic recovery. The prospect of easing the US-China trade war in Joe Biden’s upcoming administration has also helped improve investment sentiment. International oil prices are also rising. Song Seung-yeon, a researcher at Korea Investment & Securities, said: “As the market outlook is changing, investors are selling safe assets and turning to risky assets such as stocks.” Recently, the US Dow Index broke the 30,000 mark for the first time in history, and the Korean KOSPI and Japan’s Nikkei Index also showed strong strength, breaking through the highs.

Experts believe: “For the time being, there is a high possibility that good news like the development of a corona vaccine and a large-scale stimulus in the United States will continue, and the same trend may continue. Baek Seok-hyun, researcher of Shinhan Bank, said: “In particular, in the case of the won per dollar, the monetary easing policy of the US Federal Reserve (Fed) may reach 1040 won next year.”

However, the outlook for gold prices is mixed. Gold is a safe asset, but it is also a defense against inflation. Kim So-hyun, a researcher at Daishin Securities, said: “In the first half of next year, if inflation fears grow due to the prolonged low interest rate, gold could again attract attention as a hedging method. (risk diversification) US investment bank Goldman Sachs recently predicted that “the feeling of crisis caused by inflation is the highest since the 1970s” and “the price of gold can rise to $ 2,300 in a few months. “On the other hand, Macquarie analyzed that” the price of gold could drop as low as $ 1550 next year. ”

Reporter Hwang Eui-young [email protected]