Gold and silver exchange-traded funds (ETFs) listed on the Korea Exchange rebounded on July 2 after US employment data fell short of expectations, reducing the likelihood of interest rate increases. ACE KRX Gold Spot rose 2.41%, TIGER KRX Gold Spot gained 2.11%, KODEX Gold Futures (H) climbed 2.75%, and TIGER Gold Futures (H) advanced 2.65%. Silver ETFs also surged, with 1Q Silver Active up 4.90%, KODEX Silver Futures (H) rising 4.59%, TIGER Silver Active gaining 3.54%, and TIGER Gold Silver Futures (H) increasing 2.82%. The rally followed the release of US June non-farm employment figures showing an increase of 57,000 jobs versus the forecast of approximately 110,000. According to US CNBC and other foreign media, the CME FedWatch tool reflected less than 30% probability of a rate hike at the Federal Open Market Committee (FOMC) meeting on July 29. Gold and silver, as non-interest-bearing assets, become relatively more attractive when interest rate increase expectations decline.
US Employment Data Reduces Rate Hike Probability to Below 30%
On July 2 (local time), US June non-farm employment increased by 57,000 from the previous month, falling short of the forecast of approximately 110,000. Following the release of this employment data, the interest rate futures market based on the Chicago Mercantile Exchange (CME) FedWatch tool showed the probability of a rate increase at the July 29 FOMC meeting at less than 30%, as reported by US CNBC and other foreign media. The weak employment figures eased concerns about further monetary tightening. Gold and silver are non-interest-bearing assets, so when the possibility of interest rate increases declines, their relative attractiveness rises. The sharp decline in gold and silver prices during the US-Iran conflict was also related to interest rates. While precious metal prices typically rise during wartime as safe-haven assets, in this situation, inflation concerns and the possibility of US interest rate increases had a greater impact, leading to price declines instead, according to analysis.
Gold Price Movements and Central Bank Forecasts
Gold prices, which peaked at $5,595 per troy ounce in late January this year, fell to the $3,959 range on May 24 before recovering to $4,200. Forecasts suggest gold prices may rise further. A recent survey by the Official Monetary and Financial Institutions Forum (OMFIF) of 74 central banks managing assets exceeding $10 trillion found that 64% expect gold prices to exceed $5,000 per ounce by next June. Additionally, 30% stated plans to increase their gold holdings within the next 1-2 years.
Central Banks Record Highest Quarterly Gold Purchases in 25 Years
Kwon Ji-woo, a researcher at Hanwha Investment & Securities, stated, "Although there was short-term adjustment after the war, the fundamentals supporting the floor for gold and silver have strengthened." Kwon explained, "For gold, central bank purchases are key, with first-quarter central bank net purchases totaling 244 tons, the largest quarterly amount in 25 years." Regarding silver, Kwon noted, "Supply-side inelasticity reinforces the downside. With supply shortages forecast for the sixth consecutive year through this year, and approximately 70% of silver supply coming as a byproduct of other metals, independent production increases are difficult even when prices rise."
Analysts Cite Central Bank Buying and Supply Deficits as Price Supports
Nam Yong-soo, head of the ETF division at Korea Investment Trust Management, commented, "Due to the high interest rate environment including additional rate hikes and the strong US dollar, downward pressure on gold prices may persist in the short term. However, considering the gold purchasing stance of global central banks, we believe there is still value in investing from an asset allocation perspective in the long term." Nam added, "As a rebound point for gold prices, we are closely watching movements toward interest rate cuts."
FAQ
What is the probability of a US interest rate hike at the July 29 FOMC meeting?
According to the CME FedWatch tool following the release of US June employment data, the probability of a rate increase at the July 29 FOMC meeting is less than 30%.
What are central banks forecasting for gold prices?
An OMFIF survey of 74 central banks managing over $10 trillion in assets found that 64% expect gold prices to exceed $5,000 per ounce by next June, and 30% plan to increase their gold holdings within 1-2 years.
