Gold, U.S. dollar on the rise in the wake of Brexit

The price of gold has surpassed 42.2 U.S. dollars per gram on the Korean Exchange (KRX) for the first time since the gold market was opened, following the referendum on Brexit (Britain's decision to break away from the European Union) due in large part to a growing number of risk-averting investors. The gold trading surged on Monday almost by four times than normal days. The balance of U.S. dollars in commercial banks is also on the rise.

According to the KRX gold market's announcement on Monday, the closing price of gold shot up to 42.22 dollars (50,200 Korean won) per gram. This marks the first time that the price has reached the mark of 42.22 dollars on the KRX gold market since it opened in March 2014. The opening of the gold market Monday witnessed a stream of purchase orders, with the gold price peaking out at 50,520 won. On Monday alone, trading volume reached 56.14 kilograms, rising almost four times than usual.

Since the announcement of Brexit on last Friday, international gold prices have surged by 4.7 percent, exceeding the mark of 1,318 dollars per ounce, which is the highest level in two years. "As confidence in the European and British currencies has been eroded by Brexit, more investors are seeking for gold as it is a relatively safe type of asset," projected Kim Do-hyeon, a researcher at Samsung Securities.

"With the future of the EU remaining much uncertain, the gold price will continue to trend up for a while."

Investors are also stampeding for U.S. dollars, another safe asset for investment along with gold. As of last Friday, the five major commercial banks in Korea, including KB Kookmin, Shinhan, Woori, KEB Hana, and Nonghyup Bank, held a combined 34.21 billion dollars in U.S. dollar balance, up 3.02 billion dollars from late May (31.19 billion dollars). This is the largest volume following the figure tallied up in March (36.94 billion dollars) when the upward readjustment of the U.S. Fed's base key was deemed imminent.

It is analyzed that more investors are going for the U.S. dollars and gold rather than risky investments such as equities or funds, owing to the growing anxiety of the global financial market and the closing margin between the key rates of the U.S. dollar and the Korean won. U.S. dollar balance is projected to swell further on the back of the stronger dollar from the shock inflicted by Brexit.

"U.S. dollar balance was on the increase this year due to the anxieties over potential fluctuation of exchange rate and the U.S. Fed's increase in the key interest rate,” said Jang Bo-hyeong, a senior researcher at Hana Institute of Finance. “The balance will further grow once the aftermath of Brexit settles in this week."

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