"It's actually better when it falls"…Retail investors buy aggressively, 'record high' [Analysis+]

Korea's largest gold spot ETF

Market capitalization hits record high despite stock price decline

Retail investors betting 'buy more as it falls'

On the previous day, the market capitalization of 'ACE KRX Gold Spot', the country's largest gold spot exchange-traded fund (ETF), reached an all-time high roughly four years after its listing. This was due to steady inflows of new money despite a decline in its share price. With gold prices having undergone some correction from their peak, individual investors see this as a 'buying opportunity'.

According to the Korea Exchange, on the 10th the closing price of the ACE KRX Gold Spot ETF was 27,500 won, and its market capitalization was 2.8655 trillion won. The market cap set a new high since its listing in December 2021. With net assets exceeding 2.9 trillion won, ACE KRX Gold Spot is the largest gold spot ETF in Korea.

The ETF's share price had been on a downtrend after forming a peak a month earlier. The price reached a peak of 32,015 won (closing price basis) on the 15th of last month. The re-escalation of US-China trade tensions, including a possible US federal government shutdown, highlighted safe-haven demand. After US-China tensions showed signs of easing, gold prices adjusted and the ETF's price declined, yet market capitalization nonetheless reached a new high.

The surge in market capitalization despite falling prices was due to large inflows of new money. When money flows into an ETF, new 'units' (shares) are issued. Therefore, even if the price has fallen, if new subscriptions occur the number of ETF units can increase substantially, which can enlarge market capitalization.

In particular, large amounts of funds from individual investors flowed in. From the 10th of last month through the previous day, institutions net sold 405.8 billion won over the past month, and individuals fully absorbed that volume (net buying advantage of 410.1 billion won).

This is interpreted as investors assuming a long-term rise in gold prices and viewing the present as a low-price buying opportunity. On the ACE KRX Gold Spot message board, one investor said, "The only stock I hope will fall even after buying it," adding, "It's a stock I'm confident will trend upward, so I steadily bought on every 'sale' (price drop)."

International gold ETFs also continued to see inflows. According to the investment information platform TradingView, the asset size of the world's most traded gold spot ETF, the 'SPDR Gold Trust' (GLD), was US$133.5 billion (about KRW 194 trillion), making it the 13th largest among some 5,000 US ETFs.

According to a recent report by the World Gold Council (WGC), gold ETFs saw record inflows globally in Q3 of this year, with holdings increasing by 222 tonnes, of which 62% was US demand. During the same period, global central bank gold purchases amounted to 220 tonnes, meaning the volume of gold bought by investors matched the demand from global central banks. This indicates strong market demand for gold.

Whether domestic or international, steady inflows into gold spot ETFs are seen as reflecting expectations of future gold price increases. The WGC stated in its report that "74% of total US gold demand in Q3 came from ETFs," analyzing that the role of 'ETFs' in determining gold prices has significantly increased. It is also possible to interpret that future gold price trends can be gauged through ETF supply and demand.

The report also forecasted, "Even aside from ETF flows, gold prices will rise going forward." This is because consumer demand for gold bars and jewelry remains high and producers are unable to increase supply due to cost pressures. With the addition of funds flowing into ETFs, the report expects gold prices to continue a bullish trend.

An Jin-woo, head at NH-Amundi Asset Management, said, "Given the steady and steep inflows into gold ETFs globally, I believe future gold demand will remain intact."

He added, "However, the main supply-demand players are individuals for domestic gold spot ETFs and institutions for international gold spot ETFs," advising, "Although both domestic and foreign markets have seen bargain buying, it's the strong 'big players' in the US market that are supporting gold prices through ETF flows. Keep this in mind when investing."

Shin Min-kyung, Hankyung.com reporter radio@hankyung.com