Should You Buy Gold Bars Now? “Increase Gold Investment Allocation” [Weekend Money]

Gold Expected to Recover $5,000 per Ounce Within the Year
Tightening Concerns Already Priced In as Gold Demand Rises

Despite continued caution over further tightening by the Federal Reserve, bargain buying in gold continues to flow in, drawing the attention of investors. As analysts suggest that gold remains undervalued at present, some predict that gold may reclaim the $5,000-per-ounce mark within the year.

On the 23rd, as the U.S. Federal Reserve (Fed) cut interest rates and tensions escalated in the Middle East, gold prices surpassed $2,600 per ounce for the first time in history. At the Seoul Jongno branch of Korea Gold Exchange in Jongno-gu, an employee is organizing gold bars. Photo by Jinhyung Kang aymsdream@

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According to NH Investment & Securities, the comprehensive commodity index (based on the S&P GSCI) rose by 0.22% last week. This reflects the market’s adjustment to the Federal Reserve’s interest rate hike decision on September 16 (local time) and to oil price volatility. While the Federal Reserve has signaled more rate hikes this year and the yield on the U.S. two-year Treasury note has surged to approximately 4.75%, the precious and industrial metals sectors have regarded these risks as already priced in, prompting renewed bargain buying.

It is notable that current gold prices have already reflected concerns about additional tightening by the Federal Reserve. The 4.75% yield on two-year U.S. Treasuries factors in the possibility of three additional rate hikes. As a result, some state that “concerns about tightening are excessive,” and gold prices are exhibiting strong downward rigidity.

Supply and demand dynamics are also supporting gold prices. Due to massive fiscal deficits and policy uncertainty in the United States, global central banks have been diversifying their foreign exchange reserve assets and expanding their gold reserves. Additionally, since last month, investors have shifted to net buying, focusing on gold bars, coins, and exchange-traded products (ETPs).

Hwang Byungjin, Head of FICC Research at NH Investment & Securities, analyzed, “Unlike in the past, there is only limited upward pressure on short-term real interest rates, while there continues to be net inflows into physical gold ETPs. We are maintaining our ‘overweight’ rating on gold and see the year-end target of recovering to $5,000 per ounce as valid.”

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