By Yoon Ja-young
Staff Reporter
Low interest rates and falling asset prices in real estate and stocks are making investors turn their eyes to gold, with some funds investing in the precious metal recording over a 50-percent return in three months.
There are a number of positive signs for gold investors. While the output from mines is falling globally, preference for gold as a safe asset is growing. The dollar and gold are both showing strength as safety assets, which is a unique phenomenon.
``The reverse correlation between gold and the dollar seems to have been broken recently,'' said Ahn Jung-kyun, an analyst at SK Securities. Usually, gold prices go down if the dollar strengthens, and vice versa. Despite the strong dollar, however, gold has been getting expensive. ``Concerns over the increasing issuance of U.S. bonds have made them less attractive, so the demand for gold, the other safety asset, is growing,'' Ahn said.
Many economists caution that it is only matter of time before the dollar falls, considering the faltering U.S. economy and the amount of dollars it is to print. Hence, gold, which central banks around the world can't print, is emerging as the only safe investment tool. Not only individuals but also central banks are increasing their gold stocks as a foreign exchange reserve tool.
Gold has also been a hedge against inflation. The recent increase in global oil prices following the nosedive from nearly $150 per barrel last year is making early movers choose gold to hedge against inflation that might occur if central banks print money.
According to the Korea Jeweler's Association, retail prices of gold recorded 49,867 won per gram, Monday, surpassing the record high of 49,600 won marked in October. On the London Metal Exchange, gold recorded 925 dollars per ounce Jan. 30, rising 3 percent in one week.
Consequently, funds investing in gold have recorded noticeable returns. According to Zeroin, a fund information provider, a number of major gold funds recorded some 50 percent in returns over the last three months, in contrast with an average 8 percent investment return recorded by overseas equity funds.
However, some analysts point out that gold has already soared excessively and advise investors to keep in mind that gold prices are very volatile. Market consensus is that the theme is deflation, not inflation; and even gold prices can't soar during this.