Gold funds generate profits as prices soar amid weak USD

The prices of gold, which is seen as a safe haven asset, are starting to soar as mounting concerns about an economic slowdown and growing expectations of the U.S. Federal Reserves may slow interest rate hikes, making it an attractive investment source.

According to Seoul-based financial data tracker FnGuide on Monday, 12 gold-related funds in Korea earned 7.7 percent in profit in the past month, posting the second-highest profit in theme fund category after financial funds. Gold funds offered negative returns this year of up to 6.0 percent before rebounding three months ago.

IBK Gold Mining Securities Master Investment Trust, which had a pool of 21.1 billion won ($16.1 million) in its entire funds except for exchange traded funds, had a three-month profit of 22.7 percent. Shinhan Gold Securities Investment Trust and Hi World Gold Securities Investment Trust was also showed gain of 12.2 percent and 15.1 percent respectively.

The high profit has led investors to pour more money into gold funds, which is in contrast to how they pulled out of other investments amid higher interest rate and poor fund performances. About 11.8 billion won has flowed into gold funds in the past three months.

Gold is generally traded in U.S. dollars, which means that a stronger greenback would mean more money for the same amount of gold purchased. The strengthening of the dollar leads to a decline in gold price and vice versa when the dollar weakens.

The futures price of gold that once reached $2,000 per ounce fell to $1,600 in September amid the U.S. Fed’s sharp rate hikes and strong dollar.

The price, however, has entered an uptrend in October amid expectations that the U.S. Fed would slow its rate hikes. The futures gold price surpassed $1,800 per ounce in December to recover to the price seen in January.

Gold is also being highly sought as a safe asset when the global economy slows.

Central banks around the world have started to buy gold.

According to the World Gold Council, central banks in the United Arab Emirates, India and Uzbekistan have purchased a total 31 tons of gold in October to own the largest amount of metal since 1974. China’s central bank has also added 32 tons of gold in November, according to foreign media.