Gold Prices Rebound... "Should I Try Investing in a Gold Account?"

Recovery Trend Seen in Products That Declined in June Due to Prolonged COVID-19 and Cryptocurrency Slowdown

An employee is organizing gold bars at the headquarters of the Korea Gold Exchange.
[Photo by Yonhap News]

[Asia Economy Reporter Sung Ki-ho] Gold, a safe-haven asset that had been temporarily overlooked, is gaining attention once again. The prolonged COVID-19 pandemic and the recent repeated sharp declines in cryptocurrencies are cited as the main reasons for the increased economic anxiety affecting investor sentiment. Additionally, the MZ generation in their 20s and 30s, exhausted by soaring housing prices beyond what their existing incomes can handle and the high volatility of stocks and coins, are also turning to gold. Because of this, despite the forecasted interest rate hikes in the second half of the year, gold’s popularity is expected to continue for the time being.

According to the financial industry on the 24th, as of the 20th, the balance of gold accounts at KB Kookmin, Shinhan, and Woori Banks recorded 688.8 billion KRW, an increase of 27.5 billion KRW from the previous month’s 661.3 billion KRW. The gold account balance had slightly decreased from 632.7 billion KRW in January to 621.9 billion KRW in February but then increased until May (708.2 billion KRW). However, in June, after the U.S. Federal Reserve (Fed) announced its stance to raise interest rates twice by 2023, the gold account balance showed a decline in June (661.3 billion KRW).

The price of gold also affected sales of gold bars, which are sensitive to price changes. According to KB Kookmin, Hana, Woori, and NH Nonghyup Banks, as of the 16th, gold bar sales in July amounted to 65.5 kg. Gold bar sales, which had sharply decreased from 105.1 kg in April to 89 kg in May, surged in June to 145.9 kg when prices were lower.

Gold prices typically fall when U.S. interest rates rise because the dollar value increases, leading to lower gold prices. However, gold prices have recovered this month, boosting the popularity of related products such as gold accounts. According to the Korea Gold Exchange, the gold price, which was 278,000 KRW per 3.75g on June 30, rose to 290,500 KRW on the 20th.

The renewed popularity of gold as a safe-haven asset is due to the global spread of the COVID-19 Delta variant, which has cast doubt on a swift economic recovery, along with the recent sharp decline in cryptocurrencies that had been in the spotlight. Cryptocurrencies, which had sparked a frenzy with the motto "avoid becoming a sudden pauper," have seen prices of most coins drop nearly 50% over the past two months. According to Upbit, South Korea’s largest cryptocurrency exchange, only 1 out of 102 coins increased in price over the past three months. Meanwhile, the stock market continues to face ongoing debates about its high valuations.

Gold accounts are gaining attention as a representative indirect gold investment product that allows easy investment. By depositing money into one’s account, the balance automatically fluctuates according to international gold prices. It offers the advantage of enabling gold investment with a small amount and the ability to redeem at any time. Transaction fees are also around 2%, which is cheaper than buying gold bars. Because of this, gold accounts remain popular despite transaction fees and a 15.4% dividend income tax.

Moreover, the MZ generation has begun to recognize gold investment as a good option that simultaneously offers "stability and profitability." Faced with the burden of investing in highly volatile cryptocurrencies and a stock market that keeps hitting new highs, they are turning their attention to gold as a "safe-haven asset."

According to the Korea Exchange, as of March this year, 51.8% of individual investors who opened general product accounts at securities firms to trade in the KRX (Korea Exchange) gold market were in their 20s and 30s. As the MZ generation actively enters gold investment, the market size is rapidly growing. The average daily trading value in the first half of this year was 8.26 billion KRW, up 13.8% from the previous year. The average daily trading volume also increased by 19.4% during the same period to 126.2 kg.

The reason the MZ generation focuses on gold investment is due to its "low transaction costs." The KRX gold market does not impose taxes on capital gains, and value-added tax is exempted for on-exchange transactions. Transaction fees are also lower compared to general investment products.

An exchange official said, "With the expansion of global economic uncertainties, the importance of safe-haven assets has been highlighted, and gold is gaining attention," adding, "The rapid growth of the gold market is due to increased participation by young investors."

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