🚨 Gold Price Hits Record High
Today Korean Economic News for Beginners | 2025.09.06
0️⃣ Will Troy Ounce Reach $5000? Safe Asset Demand Surges
📌 Trump Political Chaos, Fed Conflict, and Dollar Weakness Create Perfect Storm for Gold ETF Inflows
💬 International gold prices continue to break record highs as investors show a clear preference for safe assets. As of September 6th, gold futures prices broke through $2,680 per troy ounce, rising more than 26% this year. Major Wall Street investment banks predict gold could reach $3,000 by year-end and $5,000 next year. The combination of deepening conflicts between President Trump and the Federal Reserve, US political instability, and global economic slowdown concerns has led to explosive fund inflows into North American and European gold exchange-traded funds (ETFs). Institutional investors' portfolio diversification moves and individual investors' inflation hedge demand are driving gold price increases.
1️⃣ Easy Explanation
Let me explain why gold has become so expensive lately and what might happen next. Gold prices are rising not because people want more jewelry, but because of economic and political uncertainty.
First, let's understand why gold is called a 'safe asset.' When companies fail, their stocks become worthless. When countries go bankrupt, their bonds lose value. But gold has value by itself as a physical asset, so it never completely loses its worth. That's why people rush to gold when the economy or politics become unstable.
Several factors are causing gold prices to surge right now. First, US politics is chaotic. The conflict between President Trump and the Federal Reserve has created uncertainty about US economic policy. Second, the global economy is slowing down, so investors prefer safe gold over risky assets like stocks or real estate.
Third, the dollar is getting weaker. Since gold is usually traded in dollars, when the dollar loses value, gold appears more expensive. It's like how import prices go up when our currency weakens.
Fourth, people expect interest rates to fall. When interest rates drop, bank deposits and bonds become less attractive, making gold more appealing even though it doesn't pay interest. For example, if deposit rates fall from 5% to 2%, the opportunity cost of holding gold decreases.
Recently, not just individual investors but also big institutions are investing in gold. Huge funds like pension funds and insurance companies are putting money into gold ETFs to diversify their portfolios, creating a surge in demand.
The current gold price increase is the result of a massive trend called 'economic and political uncertainty.'
2️⃣ Economic Terms
📕 Safe Haven Asset
A safe haven asset is an investment that maintains stable value even during economic crises or political instability.
- Gold, US Treasury bonds, Swiss franc, and Japanese yen are typical safe haven assets.
- Even with lower returns, they're preferred during uncertainty because of low risk of principal loss.
- During crises, there's a 'Flight to Quality' phenomenon where stability matters more than profitability.
📕 Gold ETF (Gold Exchange Traded Fund)
A Gold ETF is an exchange-traded fund that lets you invest in gold price movements without buying physical gold.
- You can buy and sell easily like stocks without the hassle of storing physical gold.
- SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) are popular gold ETFs.
- Popular with individual investors because you can invest small amounts in gold.
📕 Troy Ounce
A troy ounce is the international standard weight unit used in precious metals trading.
- One troy ounce equals about 31.1035 grams, slightly heavier than a regular ounce (28.35 grams).
- All international gold market transactions are based on troy ounces.
- One kilogram of gold equals about 32.15 troy ounces.
📕 Inflation Hedge
Inflation hedge is an investment strategy to protect against currency value decline due to rising prices.
- Gold has historically tended to rise in price during inflationary periods.
- When prices rise, currency purchasing power falls, but gold's real value is maintained or increases.
- Real estate, commodities, and TIPS (Treasury Inflation-Protected Securities) are also used as inflation hedges.
3️⃣ Principles and Economic Outlook
✅ Structural Factors Behind Gold Price Rise
Let's examine the fundamental economic structural changes driving the current gold surge.
First, US political risks and policy uncertainty are causing safe asset demand to explode. The deepening conflict between President Trump and the Fed has raised doubts about the consistency of US economic policy. Particularly, concerns about Fed independence and potential political interference in monetary policy have led investors to trust gold more than the dollar or US Treasury bonds. Goldman Sachs analyzed that "as long as political uncertainty continues, the premium on gold will be maintained." Over the past three months, gold prices have shown immediate reactions to political events.
Second, global central banks' policies to expand gold holdings are fundamentally changing supply and demand structure. Central banks from emerging countries, including China's People's Bank and Russia's Central Bank, are significantly increasing gold purchases to diversify their foreign exchange reserves. According to the World Gold Council, central bank net gold purchases in the first half of this year were 483 tons, up 5% from the same period last year. This is because countries are re-evaluating gold as the 'ultimate safe asset' due to concerns about dollar dominance and increasing geopolitical risks. China has increased its gold holdings for 15 consecutive months, and this trend is unlikely to change in the short term.
Third, structural dollar weakness and falling real interest rates are strengthening gold's fundamentals. Long-term dollar weakness pressure continues due to expanding US fiscal deficits and worsening trade balance. At the same time, expectations for Fed rate cuts are growing, causing real interest rates (nominal rates minus inflation) to fall, making gold more attractive relative to interest-bearing assets. JPMorgan analyzed that "considering the historical pattern where gold prices rise an average of 15-20% for every 1% drop in real interest rates, the current gold price increase may be in its early stages."
These structural factors represent long-term trend changes rather than temporary phenomena, so gold strength is likely to continue for a considerable period.
✅ Investment Demand Pattern Changes and Market Dynamics
Let's analyze the qualitative changes in recent gold investment demand and the impact of new market participants.
First, institutional investors' portfolio rebalancing has become a major driver of gold demand. Large institutional investors like pension funds, insurance companies, and university endowments are moving away from traditional 60:40 portfolios (60% stocks, 40% bonds) to increase alternative investment portions. Particularly, they're approaching gold as 'portfolio insurance,' allocating 5-10% of total assets to gold. Harvard University's endowment recently announced increasing its gold ETF investment ratio from 3% to 7%, and this movement is spreading to other institutions. Because institutional investors' fund sizes are so large, their participation significantly affects the supply-demand balance in the gold market.
Second, millennial and Gen Z digital gold investments are forming new demand groups. Young investors are investing in gold through various methods like gold ETFs, gold futures, and even gold-based cryptocurrencies instead of traditional gold bars or coins. Trading volumes of gold ETFs on mobile investment platforms like Robinhood and E-Trade are surging, representing a completely different investment pattern from the past. They have high concerns about inflation and economic instability while being digital natives, preferring derivative investments over traditional physical gold. This change increases gold market volatility while expanding the investment base in the long term.
Third, 'hedge premiums' due to geopolitical risks are being structurally reflected in gold prices. With multiple geopolitical risks existing simultaneously, including the Russia-Ukraine war, Middle East conflicts, and US-China trade disputes, investors are paying a kind of 'insurance premium' for gold. In the past, gold prices would fall again when specific crises were resolved, but now multiple risks are working together, raising the 'floor price.' Citigroup analyzed that "current gold prices include about $200-300 of geopolitical premium, which will be difficult to disappear in the short term."
Diversification and structural changes in investment demand are increasing the depth and stability of the gold market while sustaining upward momentum.
✅ Future Outlook and Risk Factors
Let's comprehensively analyze gold price future prospects along with risk factors to watch.
First, there's potential for short-term rises to $5,000, but volatility will also expand significantly. Major investment banks including Goldman Sachs, JPMorgan, and Bank of America predict gold prices could reach $3,500-5,000 by 2026. However, 10-20% short-term corrections are expected to occur frequently during this surge. Particularly, changes in Fed interest rate policy or improvements in US political situations could create strong downward pressure on gold prices. Also, at current levels, some speculative demand is included, so the possibility of sharp rises and falls due to market sentiment changes should always be considered.
Second, long-term structural upward momentum will be maintained, but watch for emerging alternative investments. Over the next 5-10 years, the basic upward trend of gold is expected to continue due to weakening dollar dominance, persistent geopolitical risks, and inflation pressure. However, digital assets like Bitcoin and new forms of safe assets are emerging, potentially changing gold's monopolistic position. Some young investors are increasingly choosing Bitcoin, nicknamed 'digital gold,' instead of gold. Also, if central bank digital currencies (CBDCs) become widespread, they could affect gold's monetary function.
Third, currency risks and opportunity costs must be considered when investing in gold. For Korean investors, even if gold prices rise, returns in won terms could decrease if the won-dollar exchange rate falls. Also, in scenarios where interest rates rise sharply, gold's attractiveness could drop rapidly. Experts advise that "gold investment should be approached with a long-term perspective at 5-15% of the total portfolio." It's also important to choose among various investment methods like physical gold, gold ETFs, and gold-related stocks based on your investment purpose and risk tolerance.
While gold investment has clear advantages, it's not a perfect investment, so careful approach and diversification principles are key.
4️⃣ In Conclusion
The current gold price rise is not mere speculative fever but a phenomenon reflecting fundamental changes in global economic and political structures. Structural factors like US political instability, weakening dollar dominance, and increasing geopolitical risks are working together to re-evaluate gold's value as a safe asset.
A particularly noteworthy point is the qualitative change in investment demand. While in the past, people rushed to gold only temporarily during economic crises, now large institutional investors are structurally increasing gold portions for portfolio diversification. Also, younger generations are investing in gold digitally, forming new demand groups and further expanding the gold market base.
The forecast for rises to $5,000 is not mere wishful thinking. Fundamentals like central banks' expanded gold purchases, falling real interest rates, and increasing inflation hedge demand support this. However, considerable volatility is inevitable during this surge, so risk management preparing for short-term corrections is necessary.
For Korean investors, careful approach considering currency risks and opportunity costs is important. Gold is certainly a useful diversification tool, but you should maintain appropriate portions in your total portfolio and approach with a long-term perspective. It's also important to choose among various investment methods like physical gold, ETFs, and related stocks based on your situation.
Most importantly, remember that gold investment has strong 'insurance' characteristics. Rather than expecting big profits, it's better to use it as a hedge against economic uncertainty. Considering current global instability, gold's role will become more important, but putting all assets into gold could create other risks.
Ultimately, the success of gold investment depends on appropriate timing, portion control, and long-term vision. While using the current upward trend as an opportunity, we need balanced investment strategies that fully consider volatility and risk factors.
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