"Let's Bury It Safely"... Money Seeking Refuge Amid COVID-19-Induced Financial Anxiety (Comprehensive)

Increase in Gold Bar Sales and Geumtongjang Balances
Demand Deposit Balances Also Rose Again Last Month
"Market Funds Expected to Flow Conservatively"

On the 13th, as the global stock market was hit by the impact of the COVID-19 pandemic, dealers were busy working in the Hana Bank dealing room in Euljiro, Seoul. Photo by Moon Honam munonam@

[Asia Economy Reporters Hyojin Kim and Minyoung Kim] Amid rising financial instability due to the spread of the novel coronavirus infection (COVID-19), market funds are flocking to 'safe havens.' In particular, gold, a representative safe asset, is gaining attention. As COVID-19 has entered the pandemic phase, causing domestic and international financial markets to start shaking vigorously, this trend is expected to accelerate further.

According to the banking sector on the 13th, the balance of gold bar sales at major commercial banks such as KB Kookmin, Hana, Woori, and NH Nonghyup reached approximately 3.17 billion KRW last month, an 8.3% increase compared to the previous month (about 2.93 billion KRW). The downward trend since August last year has reversed to an upward trend.

The balance of gold banking (gold passbook) at banks is also rapidly increasing this month. The gold banking balance handled by Shinhan and Woori Banks slightly increased from 456 billion KRW in December last year to 463.4 billion KRW in January this year, then decreased again to 459.3 billion KRW last month. However, as of the 11th of March, the balance recorded 446.8 billion KRW, nearly matching the total balance of the previous month.

This is interpreted as a preference for safe assets due to the COVID-19 situation, causing gold prices to soar. According to the Korea Exchange, the amount of gold spot traded in the KRX Gold Market from the 2nd to the 11th of this month was 751.7 kg. On a daily average basis, this is 94.0 kg, significantly exceeding last year's daily average trading volume of 43.6 kg.

Even when narrowing the recent period, a similar trend is observed. The daily average trading volume in the KRX Gold Market was 32.0 kg in December last year, but sharply increased to 76.1 kg in January this year and 84.8 kg last month.

A financial sector official forecasted, "The anxiety surrounding the financial market is rapidly increasing, which is highly likely to translate into expectations for rising gold prices."

The balance of demand deposits at major commercial banks is also showing signs of increasing again. Demand deposits allow free deposits and withdrawals but have low interest rates, so they tend to hold money that has not yet found a place or is passing through.

The total demand deposit balance at KB Kookmin, Shinhan, Hana, and Woori Banks last month was 407.1111 trillion KRW, a 3.93% increase compared to the previous month. It decreased by 1.45% from 397.497 trillion KRW in December last year to 391.7014 trillion KRW in January this year, then rapidly increased coinciding with the full spread of COVID-19 fears.

A commercial bank official analyzed, "It appears to be the result of the COVID-19 outbreak hitting an already weakened investment sentiment in financial products due to overseas interest rate-linked derivative-linked funds (DLF) and the large-scale loss incident at Lime Asset Management."

The official also predicted, "Highly profitable financial investment products are often linked to overseas market investment projects. Since the impact of COVID-19 is expanding worldwide, market funds are expected to move in a conservative direction for the time being."

The financial supervisory authorities are concerned about the overall deterioration of soundness in the financial sector. The Financial Supervisory Service, in its 2020 business plan announced the day before, cited the spread of COVID-19 as a major domestic financial risk and stated, "There are concerns about damage to small and medium-sized enterprises and self-employed individuals due to contraction in consumption and production, and the possibility of losses in high-risk financial products is also increasing due to increased volatility."

This content was produced with the assistance of AI translation services.