Once in High Demand, Now a Sudden 'Plunge'... Should You Buy Gold Amid the Downturn? [Weekend Money]

Reasons Behind the Decline in Gold, Silver, and Bitcoin


Tightening Concerns and Strong Dollar

Liquidity Shift to U.S. AI Deals a Direct Blow

Fears of a Sharp Liquidity Contraction Are Overstated

"Recently, concerns have been raised about shrinking liquidity as the prices of major assets such as gold, silver, and Bitcoin have plummeted. However, some analysts predict that asset market momentum will strengthen again in the second half of the year.

Citizens visiting the Korea Gold Exchange in Jongno-gu, Seoul are inquiring about gold-related products. Photo by Jin-Hyung Kang

According to iM Securities on June 28, the prices of major assets and commodities have been trending downward. At the beginning of the year, expectations were high that the U.S. Federal Reserve would implement additional interest rate cuts this year. However, following the recent Federal Open Market Committee (FOMC) meeting, the possibility of a rate hike within the year has come to the fore, putting pressure on asset prices.

The continued strength of the U.S. dollar and the concentration of investment in leading stocks have also played a role. Unlike the U.S. economy, the eurozone is facing recession risks, which has increased downward pressure on the euro. In addition, political instability in the UK and further rate hikes by the Bank of Japan have failed to stop the yen's depreciation, further fueling the dollar's strength. Moreover, with major events such as the listing of SpaceX and massive fundraising by hyperscalers, some global liquidity has shifted from certain asset markets to major U.S. artificial intelligence (AI) companies, leading to a decline in asset prices.

While there are concerns that this sharp drop signals a rapid contraction of the liquidity that has supported asset markets, some experts argue that these fears are exaggerated. Although the tightening risks of the U.S. Federal Reserve and some other central banks have clearly intensified, it is not expected that the tightening stance will be maintained or strengthened in a sustained way in the second half of the year. International oil prices, which reignited tightening risks, are stabilizing quickly, and the correction in commodity prices is now more likely to weaken inflationary pressure. In the U.S., the base effect from last year's tariff increases could have a positive impact on prices in the second half, raising the possibility of a shift toward a disinflationary phase.

Park Sang-hyun, a researcher at iM Securities, said, "In the current climate, where concerns about overheating in the AI sector have surfaced and even the prices of gold, silver, and Bitcoin are plunging, worries about volatility in the asset market may be heightened. However, the phenomenon of shrinking liquidity is likely to be temporary," adding, "On the contrary, as we enter a disinflationary phase in the second half of the year, asset market momentum, especially centered on the stock market, is expected to strengthen once again."

This content was produced with the assistance of AI translation services.