Gold bars at the Korea Gold Exchange in Jongno-gu, Seoul. News1
Retail investors in South Korea are buying gold again as prices rebound, shifting to net purchases for the first time in four months after selling for three straight months since May.
Individual investors bought a net 133 billion won ($95 million) worth of gold on the KRX Gold Market between the start of the month and the 14th, according to the Korea Exchange (KRX) on the 17th. It marked their first net buying since May.
From May through July, retail investors sold a net 524 billion won worth of gold on the market. They sold 125 billion won in May, with net selling widening to 348 billion won in June. They sold another 51 billion won last month before turning buyers this month.
The renewed appetite comes on the back of a recent rebound in international gold prices.
Gold had been falling under the weight of last year’s sharp rally, compounded by concerns over monetary tightening from the U.S. Federal Reserve after crude oil prices surged in the wake of the U.S.-Iran war. But U.S. employment data and the consumer price index for July, both released recently, showed a slowdown, easing worries about rate increases and lifting gold prices. Reports that the Bank of Korea has invested in gold for the first time in 13 years are also seen as having influenced sentiment.
Gold pays no interest or dividends. When rates are high, other assets such as deposits and bonds become relatively more attractive, but when the tightening cycle turns, funds tend to flow back into gold.
Prices have indeed risen sharply. As of the 13th, international gold futures stood at $4,420.40 an ounce, up 9% from $4,049.10 at the end of last month. On the KRX Gold Market, the price of gold (99.99_1kg) rose 13,110 won over the same period, from 187,460 won to 200,570 won per gram.
Retail money is also flowing into gold-related exchange-traded funds (ETFs). Between the start of the month and the 14th, individual investors bought a net 37 billion won of the ACE KRX Gold Spot ETF and 14 billion won of the TIGER KRX Gold Spot ETF, according to the Korea Exchange.
‘Not Yet a Sustained Rally’: Analysts Split on Outlook
Analysts are divided on whether gold prices will climb further. Some argue that with uncertainty persisting in the Middle East and the possibility of a U.S. rate increase still on the table, volatility could rise sharply in the short term.
“As long as the uncertainty of the U.S.-Iran war and the resulting concerns over Fed tightening persist, it is hard to expect a sustained rise in gold prices,” said Oh Jae-young, an analyst at KB Securities.
Others expect that continued gold buying by major central banks, along with easing rate-hike concerns down the road, could put prices back on a sustained upward trend.
“Structural factors such as central bank buying limit the chance of a crash like those in the past,” said Jung Hyun-jong, an analyst at Korea Investment & Securities. “If real interest rates enter a phase of full-fledged decline in the second half of this year and early next year, driven by a slowdown in the U.S. economy and rate cuts, gold prices have strong room to rise gradually.”
Choi Ye-chan, an analyst at Sangsangin Securities, said, “The more the prospect of slowing inflation and employment takes concrete shape, the more likely the market’s rate outlook is to shift toward a hold.” He added, “In that case, it would act as a factor for further gains in gold prices.”
He continued, “Considering that in past declines following historic gold peaks, prices confirmed a bottom over an average of about eight months and then recovered roughly 90% of the peak, year-end gold prices could rise to around $5,000 an ounce.”