"I jumped on the last train—now what?"... Retail 'gold and silver ants' cry out after buying W1.4 trillion in a month

As gold and silver prices, which had been on a tear, plunge vertically, losses are mounting for retail investors who bought W1.45 trillion worth of related exchange-traded funds (ETFs) over the past month. Precious-metal prices are in free fall after Kevin Warsh, a former U.S. Federal Reserve (Fed) governor known for his hawkish leanings, was nominated as the next Fed chair.

According to the Korea Exchange on the 2nd, 'ACE KRX Physical Gold', the largest domestic listed gold ETF by net asset value, was trading at W32,385 as of 10:06 a.m., down 8.66% from the previous session. 'TIGER KRX Physical Gold' fell 8.53% and 'KODEX Gold Futures(H)' slid 9.06%. Declines were even steeper for silver-focused ETFs. 'KODEX Silver Futures(H)' is trading at W13,850, down more than 25% from the previous session.

The problem is that retail buying was heavily concentrated in gold and silver ETFs during the recent rally. Over the past month, individuals net bought a total of W1.457 trillion in related ETFs. In particular, a large sum of W836.3 billion flowed into the highly volatile KODEX Silver Futures(H) alone during the period. Observers say losses for investors who chased the market late could snowball.

Analysts attribute the sharp drop in gold and silver prices to the “Warsh effect.” News of Warsh’s nomination as Fed chair pushed up the dollar and heightened concerns that the pace of rate cuts could be dialed back. When the dollar strengthens, prices of alternative assets such as gold and silver tend to fall. In international markets, spot gold retreated to around $4,600–$4,700 per troy ounce, about 15% below the intraday high of $5,595 recorded on the 29th. Spot silver also slumped from $121 on the 29th to around $84, down about 30% from its peak. The market sees the nomination as a pretext for a wave of large-scale profit taking, after gold surged about 25% and silver about 70% since the start of the year.

Still, experts interpret the selloff as a “short-term correction” rather than the start of a sustained decline. Hwang Byung-jin, a researcher at NH Investment & Securities, said, “Central banks around the world, wary of rising U.S. federal debt, are continuing to buy gold as part of efforts to diversify their foreign-exchange reserves,” adding, “With the Fed’s broader stance still geared toward monetary easing, investment demand for gold remains intact.” He added, “Although profit taking has increased volatility in gold prices, it is expected to soon regain its footing and return to strength, potentially rising back above $5,000 per troy ounce,” maintaining his forecast range for this year’s gold price at $4,350–$6,000 per troy ounce.

Reporter Yang Ji-yoon yang@hankyung.com