Gold (金)
It is a living creature. No one knows why it rises, nor why it falls.
Of course, how many assets in this world can truly be predicted? But gold prices are especially notorious in that even renowned investors cannot forecast them.
In theory, gold prices should fall as bank interest rates rise. After all, earning deposit interest is more profitable than holding a lump of rock.
But when interest rates rise, it somehow feels like a warning sign of inflation. People think the value of currency will fall, and so gold prices end up rising. That is the reality of the present day.
Conversely, when interest rates fall, the market interprets it as a sign of recession, and gold, a safe-haven asset, surges again.
That was how gold prices had moved over the past ten years.
This lump of rock does whatever it wants, not only with interest rates, but also in booms and recessions.
Back when the whole world enjoyed the China boom after China opened its markets, as each country’s economic indicators entered a boom, gold prices shot through the roof.
But when the whole world had to endure an IMF-like crisis after the U.S. subprime collapse, gold prices soared again because it was a safe-haven asset.
In boom times, it rises because the value of currency seems likely to fall. In recessions, it rises because it is a safe-haven asset. A true monster…
Even looking not just at the past ten years, but at the past twenty years of gold price history, this lump of rock had always acted however it pleased.
‘Ah… I should’ve dozed off just one more time.’
As I finished up the report, I fell into that thought.
What a shame.
My stupid dream—no, my prophetic dream—that had repeated three times. If only I had known back then that this was my fate, I would have taken sleeping pills if I had to and dozed off during the meeting…
Now the stupid dream remained in my head like a faint afterimage.
In other words, only the broad macroeconomic flow remained.
It was my job to add flesh to that afterimage, with only its bones left behind. From now on, through deductive reasoning, I had to verify whether the afterimage of fate I had seen was real or not.
-Tatatatatak.
Three in the morning.
I examined financial reports and economic indicators from around the world, weighing whether the fate I had seen could truly become reality.
-Tatatatadak.
And as the data piled up, I became more and more certain.
Gold… no, all commodities including gold had no choice but to rise now.
*
Monday morning, in the director’s office, the pension fund executives stood before the director with tense faces.
The portfolio reports submitted by each team last week… Today was the day the director would share his thoughts on them.
But seeing how dark the director’s expression was even before the meeting began, it seemed none of the portfolio compositions had satisfied him.
“Did I give you too little time? If I’d given you a week or a month, would you have produced proper reports?”
“…”
“But you see, the current market is so urgent that morning and afternoon conditions are different. Just how much more time do I need to give you before a report worth looking at comes up?”
The director was in a foul mood.
And for good reason—he was in an extreme hurry.
With the unprecedented pace of U.S. interest rate hikes, it would not be an exaggeration to say the global stock market had become a gambling den.
Bonds, once a safe asset, were plunging into the abyss, while the bizarre phenomenon of U.S. interest rates overwhelming those of other countries was unfolding.
To respond to this, one needed not only theoretical knowledge but also quick reflexes in dealing with the market. Yet every report submitted last week had fallen short of his expectations.
“I know. It’s hard to find a real gem that’s safe and can also be expected to produce high returns. But aren’t pension funds made up of people who are supposed to do precisely that difficult thing? Chief Kim.”
“Yes…”
The first up was Kim Myeongcheol, chief of the domestic team.
“Korea probably won’t raise interest rates, so we should buy short- to mid-term government and public bonds… If that’s what you’re going to do, you might as well put the money in bank deposits. After taxes, there’s hardly any difference between bonds and deposits, is there? Who said they wanted to hear something so obvious?”
-I-I apologize.
“The same goes for you people in the Alternative Investment Office. A recession is expected in the U.S. due to the impact of high inflation, and your alternative investment is Europe? Did you read last month’s IMF report? Germany should be taking its cultural assets and going over there to borrow money. All of Western Europe has tentative growth rates in the zero-percent range!”
Just because the U.S. market was unstable did not mean the European market was an alternative.
He could not explain exactly why, but Europe’s economy and stock market seemed to have even more serious problems.
-I-I apologize…
“Even so, I’ll acknowledge the Alternative Office’s report to some extent. I agree that the Nasdaq seems overheated. So I’d like our portfolio to hold more assets other than U.S. assets.”
-Yes, yes.
“But you see, you need to bring me something appetizing, don’t you? What am I supposed to do with a portfolio that’s only one or two percent higher than bank deposits?”
After giving them all a thorough dressing-down, the director continued.
“I’ll give you exactly one more week.”
-…
“Even after the Fed made a giant step, prices show no sign of being tamed. If the Fed raises rates further, U.S. bonds won’t be safe assets anymore either, will they? Each office is to find a real gem and submit a report within this week.”
The chiefs swallowed their groans and disappeared.
The current global market was in such chaos that the term “value investing” felt hollow.
In this current situation where everything was unstable, just where on earth was a safe, high-yielding gem supposed to be hiding?
“Wait, Chief Oh.”
As everyone was getting up, the director called Chief Oh separately.
“Chief Oh, did you forget my request? I told you to bring me that fellow’s report directly. Why didn’t you submit it?”
“…I apologize. He said he was conducting his own research, so the report was only completed today.”
“Is that what you’re holding?”
“Ah, yes.”
“Give it here.”
Chief Oh hesitated.
“…Director, do you really need to see it?”
“Why?”
“I reviewed it first… and I don’t think it’s in line with what you’re aiming for.”
“How absurd is it?”
“It isn’t absurd. On the contrary, it was persuasive. I even heard his explanation of it directly, and the logic was solid. However, the direction our pension fund pursues… it certainly was not that.”
“What is it?”
The impatient director snatched the papers from Chief Oh’s hand.
[Gold (金)… Commodity Portfolio]
Just from the title, the director could understand why Chief Oh had hesitated.
Commodities, including gold, were a forbidden domain that the pension fund had never once touched over the past sixty years.
For good reason—they were risky assets with too much volatility.
The assets the pension fund pursued were those that, despite ups and downs, steadily trended upward over time. Commodities were far removed from that kind of value investment.
Crude oil, which had hit 100 dollars twenty years ago, was now hovering around 70 to 80 dollars. And even that was one of the better cases. Commodities like grain, steel, and nickel had seen virtually no price change over the past ten years, as if they were on a fixed-price system.
“Gold, is it… Heh.”
The director’s face, which had held a slight trace of expectation, cooled at once.
“Does this fellow not know that our pension fund doesn’t deal with gold?”
“That’s not it. He knew.”
“And he still submitted it in the report?”
“Yes. According to Assistant Manager Lee’s explanation, not only gold, but commodity prices in general are bound to rise for the time being.”
“Twenty years ago, everyone said crude oil would hit 200 dollars. And how much is it now?”
“Yes. That is why he said other commodities should be approached in the short term. However, in the case of gold prices, he explained that they would steadily trend upward… and that our pension fund portfolio should include a significant portion of it.”
The director snorted.
“Chief Oh, do you think that makes sense?”
Perhaps because his last shred of expectation had collapsed, his voice was edged with anger.
“Over the past five years, gold prices have already tripled. They already peaked during the zero-interest-rate era! In a period of rising rates, they have nowhere to go but down. How can anyone say we should buy gold?”
“…Director, you know this. Gold prices aren’t affected much by things like that.”
“What?”
“In a boom, gold rises because of inflation. In a recession, it rises because it is a safe-haven asset. The impact of U.S.-driven high interest rates on gold prices will be extremely limited.”
Chief Oh stood ramrod straight and did not yield.
In truth, when he had first heard Sejun’s explanation, he had reacted the same way as the director.
It made no sense that gold prices, which had peaked during zero interest rates, would rise again during high interest rates. If gold were that invincible, every investor in the world would be buying nothing but gold.
But when he looked at the global market conditions, each country’s economic indicators, and commodity supply-demand rates that the guy had written into the report, he found himself gradually being persuaded.
“Looking at the current market situation, concerns about inflation are far greater than concerns about high interest rates.”
Indeed, that was the case.
Recently, the Fed had administered the drastic prescription known as a giant step, but prices still showed no sign of being tamed. Now, many experts were questioning whether the U.S. could truly bring inflation under control.
“Concerns about inflation… beat concerns about high interest rates?”
“Yes. Otherwise, why would exchange rates remain calm even though U.S. interest rates have surpassed those of other countries? The current market fears inflation more than interest rates.”
It was true. Chairman Pavil had continued to issue rate threats at every opportunity even after carrying out the giant step.
Recently, he had even mentioned that U.S. interest rates could exceed 4%. It was the first time he had cited a concrete number… Yet despite that, the CPI index was still flashing red.
As a result, many experts began to doubt the Fed. Before long, global stock markets were more worried about America’s unquenchable inflation than about high U.S. interest rates.
“In the end, then, the safest assets are commodities.”
That was why it had to be gold.
Commodity prices rose and fell according to industry conditions, but in an inflationary environment, they invariably soared.
Accordingly, Sejun’s report argued that the pension fund should increase its investment in commodities and purchase gold from a long-term perspective.
By the time the lengthy explanation ended, the director’s face had changed one hundred and eighty degrees from the beginning.
“…Even so, gold has risen too much.”
“Director, if ‘risen too much’ is your standard for purchase, you won’t be able to find the portfolio you want. What asset is as safe as gold while also offering predictable returns?”
“There are political considerations too. Gold is the Bank of Korea’s domain. If the pension fund buys it, people may suspect that the Bank of Korea’s gold reserves are low.”
“The gold they hold is gold they can’t sell anyway. I don’t think the concern will be that significant.”
The Bank of Korea also steadily purchased gold. But that was for public relations, to display the nation’s fiscal and monetary soundness. It was different in nature from purchases for investment purposes.
After that fierce debate ended, the director looked out the window and spoke weakly.
“The explanation is good, but as a conservative man, I simply can’t approve it. I can’t approve it…”
“…”
“But Chief Oh. If I were to give you full discretion over about 500 billion won in fund management… how would you construct a commodity portfolio?”
Chief Oh’s face flushed.
This was permission.