Gold ETF Returns Freeze Up as Interest Rates Climb
As U.S. interest rates rose and international gold prices fell, domestic gold ETFs (exchange-traded funds that deliver returns based on gold prices) have posted negative returns one after another. When rates climb, gold—which pays no interest—loses its appeal. According to ETF Check on the 13th, 'HANARO Global Gold Mining Companies,' which invests in gold mining firms, posted a one-month return of -7.97%. 'ACE KRX Gold Spot' and 'TIGER KRX Gold Spot' recorded -4.57% and -3.97%, respectively. 'KODEX Gold Active' (-4.19%) and 'SOL International Gold' (-3.91%) also turned in negative returns.
Gold prices have been swinging sharply this year. December-delivery gold futures on the COMEX closed at $4,190.60 per ounce on the 12th (local time). That is more than 25% below the record high of $5,595.47 per ounce set in January. The U.S. Federal Reserve's rate hike last month—the first in three years and two months—has relatively reduced gold's allure.
Even as prices slump, investor enthusiasm remains alive. Investors have not turned their backs on gold itself. According to the World Gold Council (WGC), $10 billion flowed net into global physically backed gold ETFs last month. Net inflows for the third quarter totaled $31 billion, a record high for a single quarter. In Korea, 10.3 billion won flowed into 'ACE KRX Gold Spot' and 3.7 billion won into 'TIGER KRX Gold Spot' over the past month. This is interpreted as reflecting expectations of a gold price recovery.
Hwang Byung-jin, a researcher at NH Investment & Securities, analyzed that "amid the U.S. federal government's massive fiscal deficit and policy uncertainty, the trend of global central banks diversifying reserve assets in their foreign exchange holdings supports a floor for gold prices," forecasting that gold would recover to the $5,000-per-ounce level within the year. Global investment banks have largely aligned on an upward outlook as well. JPMorgan and Goldman Sachs have set their gold price forecasts for the year at $4,500 and $4,650 per ounce, respectively.
