Gold price plummets amid seismic shift in global economy

The landscape of global assets is undergoing a change, as the U.S. is pushing to implement exit strategy to reduce quantitative easing (injection of ample liquidity into the market to revive the economy) due to confidence in an economic recovery for the first time in five years. The price of gold, the hottest investment during recession, has plunged, and the depreciation of the yen caused by a strengthening dollar is returning to the level in 2008, before the global financial crisis. Oil price is on the rise amid expectations for a rebound of the U.S. economy.

Gold futures for delivery in February next year at the COMEX in New York on Thursday closed at 1193.60 U.S. dollars per ounce (28.35 grams), down 41.4 dollars (3.35 percent) from Wednesday’s close. This translates into 157.88 dollars (167,431 won) per 3.75 grams, as often gauged in Korea. Gold price fell below the psychologically important 1,200 dollar level, before hitting the lowest level in three years and four months since August 3, 2010.

Amid the dollar’s appreciation and rising stock market, investors who parked their funds in gold investment over the years, are withdrawing the money to invest in stock and the dollar. Gold investment, which was the hottest investment item during the Great Recession, is showing signs of gradual retreat.

Since Federal Reserve Chairman Ben Bernanke hinted at exit strategy in May, the gold price has continued to drop over the months, falling 29 percent from the level in early this year. It is the first time since 1981 that the gold price has tumbled to this extent during the same period.

Some watchers present a rather hasty outlook that the gold price is wrapping up its “12-year rally,” after constantly rising from 2000 to 2012 as an alternative to the dollar and a safe asset. However, many experts predict that although a selling spree of gold will last for some time, the price will rebound when gold demand in emerging markets including China revives. The timing of rebound is uncertain, however.

The prices of other key metals including silver and copper as well as gold have also declined as they were affected by a strengthening dollar. Another asset that is significantly affected by the U.S. tapering off is the Japanese yen. As the yen-dollar exchange rate constantly increased (depreciation of the yen), the yen-dollar exchange rate rose to 104.23 yen to the greenback on the New York market on Thursday. The rate is approaching the level set on Sept. 9, 2008, just days before the collapse of Lehman Brothers, when the rate hit 108 yen to the dollar. Experts say that the pace of the yen’s depreciation will accelerate further in the coming months, and will rise to 115 yen to the dollar next year.

The depreciation of a country’s currency leads to a fall in the country’s export price, which in turn boosts its export competitiveness. A rise in Japan’s export competiveness due to the yen’s depreciation is expected to add to burden on Korea’s export front, which competes with Japan’s in many different items in overseas markets.

The oil price has also continued to rise on the expectations that demand will perk up further amid the overall rebound of the U.S. economy. The West Texas Intermediate for January delivery closed at 98.77 dollars per barrel, up 97 cents (1 percent) from Wednesday’s close. It is the highest close in more than two months since October 21.