Gold and debt prices rally in Korea after surprise rate cut

2019.07.18 13:54:18 | 2019.07.18 16:53:58

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The surprise cut in benchmark rate as well as this year’s growth estimate to the lowest in 10 years gave another impetus to a rush towards safe assets in Korea, sending gold prices to fresh record highs and debt prices to three-year highs.

According to Korea Exchange (KRX) on Thursday, the price of gold per gram as of 1:17 p.m. was 54,340 won ($46.18), up 810 won or 1.51 percent from the previous day, the highest since KRX Gold Market opened in March 2014.

Upon opening, gold prices were traded at 54,110 won per gram, up 1.08 percent from closing a day earlier, and widened increase during the day on news that BOK slashed the policy rate by 25 basis points to 1.5 percent. The central bank also cut this year’s growth estimate to 2.1 percent, which would be the most subdued growth since recession-hit 2009.

The gold closed the day at 54,000 won per gram, up 470 won or 0.88 percent.

Gold prices in Korea have shot up 17.52 percent from 46,240 won per gram in the beginning of the year, and 3.11 percent since July 1 when Japan announced restrictions on shipments of key chip and display-related materials to Korea.

Prices of gold – a major safe asset – tend to rise when uncertainties grow in the market as investors’ appetite for safe assets grows. Gold also offers no yield, which makes it move in the opposite direction to interest rates.

Korea’s exchange-traded notes (ETN) that set gold as a basic asset also rose on higher gold prices.

As of 1 p.m., Samsung Securities Co.’s Leverage Gold Futures ETN rose 2.68 percent and Shinhan Investment Corp.’s Leverage Gold Futures ETN 2 percent.

Silver-related ETNs that leverage on higher gold prices also gained – Samsung Securities’ Leverage Silver Futures ETN jumped 6.03 percent and Shinhan Investment’s Leverage Silver Futures ETN 5.85 percent.

Debt market also surged on new bets on an additional cut. The three-year government bond finished Thursday at 1.345 percent, the first dip under 1.4 percent since the seven-day repurchase rate was cut to a record of 1.25 percent in June 2016. The 10-year paper fell below the policy rate of 1.50 percent, yielding 1.472 percent after the rate cut.

By Chung Hee-young and Lee Eun-joo

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