Currency-Hedged Gold ETFs Outperform Spot Funds Amid Won Strength

A currency-hedged gold futures ETF, KODEX Gold Futures(H), gained 8.41% in August, significantly outperforming spot gold funds like ACE KRX Gold Spot and TIGER KRX Gold Spot, which returned around 5%. This disparity can be attributed to the strengthening of the Korean won against the US dollar.

The performance gap between currency-hedged products and those with exchange-rate exposure is not solely due to hedging. Other factors such as spot-futures price gaps, rollover gains or losses, pricing discrepancies between domestic and overseas markets, and tracking error also affect returns.

Gold prices often rise when interest rates fall, as the burden of holding gold decreases with lower nominal yields. Real yields, which are nominal rates minus inflation, play a crucial role in determining gold prices. A weaker dollar can also support gold prices by making it relatively cheaper for investors using other currencies.