Gold losing its luster as dollar spikes

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Gold losing its luster as dollar spikes

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When Greece’s expanding debt first threatened the global economy last year, investors rushed to buy gold in hope of making their asset portfolios safer.

However, gold is no longer considered such an attractive investment and traders worldwide are ditching it for alternatives such as the U.S. and German treasuries and U.S. dollars.

The rising demand for U.S. dollars as it appreciated against other currencies turned investors off gold.

Joe Foster, portfolio manger of Van Eck Global’s International Investors Gold Fund, was quoted by the Wall Street Journal as saying, “It’s been behaving more like a risk asset than a safe haven.”

Gold, which was trading at around $1,900 per ounce (31.1 grams) last September, dropped to $1,560 last month.

In just eight months, its value plummeted 20 percent. It fell more than 6 percent in April and dropped another 7 percent last month as the worsening situation in the euro zone once again threatens global markets.

As a result, gold-linked funds are seeing their profit rates plummet.

As of the end of last month, the profit rate on a KB gold fund stood at minus 12.5 percent, widening from minus 0.4 percent at the start of the year.

The profit rate on Shinhan Bank’s gold fund widened from minus 8.4 percent to minus 17.2 percent in the first three months of the year, while IBK’s expanded from minus 12 percent to minus 20.5 percent.

But while gold is losing its luster, demand is still growing for dollars.

The U.S. Federal Reserve has printed more than $2.3 trillion since 2008 in two major cases of quantitative easing to satisfy the market.

The strengthening dollar has made gold less attractive by effectively making it more expensive.

Investors have been turning to other safe havens including the U.S. and German government bonds. The yield on the U.S. government debt with a 10-year maturity fell recently to 1.62 percent.


By Ko Ran [ojlee82@joongang.co.kr]

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