After the United States decided to raise tariffs on US$200 billion (237.50 trillion won) worth of Chinese imports from 10 percent to 25 percent, China has moved to retaliate against the United States, announcing plans on May 13 (local time) to increase tariffs on American goods worth US$60 billion (71.25 trillion won) to up to 25 percent. Amid growing global uncertainty, gold, which is a risk-free asset, is attracting investors. The three major indexes of the New York Stock Exchange (NYSE) have all nosedived.
As the demand for gold bars from South Korean investors rapidly increased, KB Kookmin Bank has stopped selling some gold bar products from May 13, according to investment banking (IB) industry sources on May 14. The bank said, “We have stopped selling some products due to a temporary shortage in supply from gold bar producers.” A gold bar is one of the representative real gold investment products sold by commercial banks. The price of gold surged more than 6 percent over the past month. Investment funds flowed into U.S. dollar products until recently but now they are moving to gold, which is another risk-free asset.
The Dow Jones Industrial Average closed down 617.38 points, or 2.38 percent, to 25,324.99 after falling as much as 719 points earlier in the day, and the tech-heavy Nasdaq Composite Index, which showed a steep rise this year, dropped 269.92 points, or 3.41 percent, according to Bloomberg and other foreign media reports. For the European exchanges which closed before the NYSE, the major indexes in Germany and France lost more than 1 percent. As a result, US$1 trillion (1,187.50 trillion won) worth of market caps on the global stock markets disappeared for a day. The CBOE Volatility index (VIX), which is called the “fear index” on the Wall Street, jumped almost 30 percent, surpassing 20.
This is because a considerable amount of investors who feel anxious are piling into gold, U.S. bonds and the yen, which are all risk-free assets. The 10-year U.S. note yield slipped 3.1 basis points, or 0.031 percent, to 2.424 percent, after briefly plunging below the 2.39 percent level. The U.S. Treasury yield curve inverted again on May 13, with the 10-year note yield falling below that of the 3-month bill, fueling a debate on the growth trajectory of the U.S. economy.