An employee arranges gold bars at the Korea Gold Exchange in Jongno District, Seoul, on the first of last month. Yonhap News
Gold prices have kept climbing regardless of the direction of interest rates, drawing retail investor money into gold exchange-traded funds in South Korea. Growing concern over U.S. fiscal health has turned gold into more than a beneficiary of falling rates, casting it as a hedge against the dollar’s value and fiscal risk.
Retail investors bought a net 114.02 billion won ($79 million) worth of 10 domestic ETFs tied to spot and futures gold over the past month, according to ETF CHECK on the 30th. Of that, net purchases of five spot gold ETFs reached 108.652 billion won. Individuals bought 70.166 billion won worth of ACE KRX Gold Spot and 33.526 billion won worth of TIGER KRX Gold Spot. Five gold futures ETFs drew a combined 5.368 billion won from retail investors.
Returns have been running high as well. Over the past month, ACE KRX Gold Spot rose 8.01% and TIGER KRX Gold Spot gained 8.14%. KODEX Gold Futures (H) advanced 13.04% and TIGER Gold Futures (H) rose 12.71%. ACE Gold Futures Leverage (Synthetic H), a leveraged product, returned 27.76%. By contrast, KODEX Gold Futures Inverse (H), which bets on falling gold prices, fell 11.65%.
International gold prices have also been strong. December gold futures climbed to around $4,700 an ounce this month. On the 28th, December gold futures settled at $4,508.00 an ounce on the New York Commodity Exchange (COMEX).
What stands out is that gold has risen both when rates climbed and when they fell. Gold gained 6.6% in early August as long-term U.S. yields rose, and added 7.5% later in the month after yields pulled back following the Treasury Department’s announcement of an expanded bond buyback program.
Behind the sustained rally is U.S. fiscal risk. The U.S. budget deficit came to $432.3 billion in July, the largest since March 2021, and total debt topped $40 trillion. The dynamic works both ways: when fiscal worries push long-term yields higher, waning confidence in Treasuries and the dollar stokes demand for gold, and when the Treasury’s supply management pulls yields lower, the opportunity cost of holding gold falls.
Structural demand is also supporting prices. The People’s Bank of China added about 20 tons to its gold holdings in July, extending net purchases to a 21st consecutive month and lifting official reserves to 2,366 tons. The main variables ahead are the U.S. fiscal position and monetary policy. In particular, after Federal Reserve Chair Kevin Warsh struck a hawkish tone at the Jackson Hole meeting, any tightening shift at the September Federal Open Market Committee meeting could lift real rates and the dollar together, capping gold’s advance.
“As long as U.S. fiscal risk persists, rising long-term yields work in gold’s favor through eroding confidence in Treasuries, and rate management does so through lower opportunity cost,” said Choi Ye-chan, an analyst at Sangsangininvestment&Securities. “If this structure holds, gold prices are expected to continue their upward trend.”