'Mismatch' between the United States Department of the Treasury and the Fed... The impact of gold price fluctuations and stablecoins

As the Fed raised the benchmark interest rate by 0.25 percentage points, entering the 4% range, an analysis regarding the direction of the gold market has been released. Choi Seong-gyu, CEO of Deodol Co., Ltd., appearing on the YouTube channel 'Finance with Toad Tax Accountant', explained the recent volatility in the gold market, U.S. monetary policy, and virtual asset-related legislation that could affect future gold prices.

Policy differences between the United States Department of the Treasury and the Fed and their relationship with gold prices

CEO Choi Seong-gyu mentioned the policy differences between the United States Department of the Treasury and the Fed as the background for recent gold price fluctuations. Choi diagnosed a 'mismatch structure' where the United States Department of the Treasury shows moves to supply funds to the market through the issuance of short-term Treasury bonds, while the Fed is attempting to withdraw funds by raising interest rates.

Choi cited the issuance of short-term Treasury bonds by the United States Department of the Treasury as one of the reasons why gold prices rose by about 12–13% last August. He explained that at that time, the United States Department of the Treasury supplied funds by issuing short-term bonds to supplement the interest on 10-year Treasury bonds, and in reaction to this, gold prices rose as concerns over indiscriminate currency issuance increased. Furthermore, regarding the Fed's recent 0.25 percentage point interest rate hike, he analyzed that gold prices seem to have returned to their original positions following the universal principle that gold prices fall when interest rates rise. However, he expressed the view that since gold has already undergone adjustment, the interest rate hike would not deal a significant blow to gold prices.

Key variables for domestic gold prices: exchange rates and international market prices

To explain the specificity of the domestic gold market, Choi emphasized the importance of exchange rates. Even if international gold prices fall, domestic gold prices may not fluctuate, because one must prepare for cases where the exchange rate moves in the opposite direction.

Choi explained that even if the international gold price falls by 3%, if the exchange rate rises by 3%, the domestic gold price could remain the same as the previous day. Accordingly, he advised that when calculating domestic gold prices, one should not simply look at the international gold price graph, but examine it in connection with the exchange rate using the concept of 'international gold price multiplied by exchange rate plus VAT'. Considering the current situation where the exchange rate is hovering around the 1,360 won level, he suggested that the impact of exchange rate fluctuations on domestic gold market prices is significant.

Prospects for stablecoin legislation and Real World Asset (RWA) tokenization

He mentioned virtual asset-related legislation and the tokenization of assets (RWA) as variables that will affect the gold market in the future. Choi analyzed that the movement toward stablecoin legislation in the United States could have a negative impact on the gold market. The logic is that if stablecoins become active and each coin is mandatorily valued at 1 dollar, the value of the dollar will rise, which could deal a blow to gold prices.

On the other hand, he predicted that the activation of the RWA (Real World Asset) market, which tokenizes real estate, gold, artworks, etc., would be positive for the gold market. This is because as asset tokenization progresses, the paths for buying and selling gold will diversify. He also added that caution is needed as many coins may be delisted in the future depending on the criteria for classifying virtual assets as securities or commodities, such as bills being discussed in the United States Senate.