Experts link surge to liquidity and bond uncertainty, warn of potential shift to Treasuries during rate cuts

International gold prices have hit a record high. Gold prices have broken through the ceiling, surpassing $4,100 per ounce. Gold bars are in short supply, and the prices of exchange-traded funds (ETFs) tracking gold prices continue to soar.

Although market funds are pouring in as gold prices rise sharply, many investors remain skeptical about whether the upward trend will continue. This is because gold prices are showing an unusual surge despite differing from past conditions that typically drove up gold prices. The recent sharp rise in gold prices is the result of multiple complex factors.

Gold has traditionally been considered a safe-haven asset. This explains why gold prices tend to rise when stock prices -- risk assets -- fall, and why gold prices often move in tandem with the US dollar and US Treasury prices.

Global investors have long used gold's unwavering value as a hedge against currency depreciation caused by inflation. In periods of rising prices, demand for gold surges, driving up its price.

However, it is difficult to understand the current surge in gold prices by relying solely on past formulas. The US dollar remains weak, while the US stock market continues to hit record highs. Inflation concerns are also low. The US Federal Reserve is weighing additional interest rate cuts as it enters a dovish monetary policy cycle.

Yoon Yeo-sam, a researcher at Meritz Securities, recently identified two causes for the rise in gold prices. First, the massive budgets released by governments for economic stimulus and accommodative monetary policies have increased liquidity in the market, driving up overall asset prices, including gold. Second, as confidence in bonds -- traditional safe-haven assets -- has wavered, gold has gained more attention as an alternative.

He analyzed, "Institutions currently purchasing gold have low confidence in the rapidly increasing fiscal deficits and government debt of major countries. As gold replaces bonds' role as a safe-haven asset, its price is showing strength."

Since the factors driving the surge in gold prices are diverse, forecasting future price trends has become a complex equation. Yoon Yeo-sam stated, "Gold investors need to pay attention to both the demand for gold in major countries from a political perspective and the 'liquidity + fiscal credibility' from an economic perspective." He emphasized that sensitivity to ultra-long-term interest rates, a barometer of fiscal credibility, is particularly important.

Another point to remember is that as the interest rate cut cycle begins in earnest, US Treasuries may regain their status. If confidence in bonds as a safe-haven asset is restored and investment in bonds resumes, funds that flowed into gold could withdraw.

Kang Hyun-ki, a researcher at DB Securities, advised, "The possibility that gold may lose out to US Treasuries in the competition among safe-haven assets during the interest rate cut period should not be overlooked. While it may be difficult to immediately withdraw from gold as prices soar, it is advisable to invest a portion in US Treasuries alongside gold when constructing a safe-haven portfolio."

Gold Prices Surge to Record High Amid Sustainability Questions