[Practical Finance] Wealthy Investors Prioritize 'Geum'... Unsuitable for Ant Investors' Short-Term Investments

Alternative Assets Also Require Attention
Gold Offers Tax Benefits with No Inheritance or Gift Tax
Record-Low Oil Prices...Invest with Caution
Dollar Has Limitations in Physical Storage...Explore Various Products

[Asia Economy Reporter Minwoo Lee] As stock market volatility has increased this year, alternative asset investments such as crude oil, gold, and the dollar are gaining attention. While it is possible to invest in more stable physical assets, there are various products such as exchange-traded funds (ETFs) and exchange-traded notes (ETNs) that allow investment in the directional price movements of physical commodities, so it is advised to broaden the scope of investment.

◆Representative Safe Asset Gold... Recent Upward Movement= According to the New York Mercantile Exchange, as of the 9th (local time), the price of gold rose 4.25% from the previous day to $1,736 per troy ounce (approximately 2.11 million KRW). One troy ounce is about 31 grams (g), which is 8.294 times the domestic unit of 1 don (3.75g). After rising from the beginning of the year, gold prices fell to the $1,477 range on the 18th of last month as investors rushed to secure cash amid concerns over an economic recession caused by COVID-19, but have since sharply rebounded. Domestic gold prices have also increased. According to the Korea Exchange KRX Gold Market, as of the 9th, the gold price was 241,688 KRW per don, the highest this year.

Gold investment can be made by directly purchasing physical gold or investing in ETNs and ETFs based on gold prices. Physical investments such as gold bars, rings, and bracelets earn profits purely from fluctuations in gold prices. The biggest advantage is the tax benefits, as inheritance tax, gift tax, and comprehensive financial income tax are not imposed. This method is also preferred by wealthy investors. However, it is not suitable for small investors or short-term investments because purchasing physical gold involves a 10% value-added tax and dealer commissions. On the other hand, gold-related ETFs and ETNs are linked to actual gold prices, allowing convenient and small-scale investments like stocks.

◆Historically Low Crude Oil Prices... "An Opportunity but Be Cautious"= Crude oil, which is recording historically low prices, is also worth noting. West Texas Intermediate (WTI) crude oil was close to $61 per barrel at the beginning of the year but dropped to $20.03 on the 30th of last month, the lowest in 18 years, due to a production increase war between Saudi Arabia and Russia. Since then, it has fluctuated slightly and recorded $22.76 on the 9th of this month. With U.S. President Donald Trump continuously urging oil-producing countries to agree on production cuts, there is optimism that prices could rise to $40?50 in the mid to long term.

The typical way for individual investors to invest in crude oil is through related ETNs and ETFs, which can be traded easily like stocks. However, as excessive investment sentiment has recently concentrated on ETN products, causing a large premium/discount rate (the difference between the indicative value and market price), authorities have issued various warnings, so caution is necessary. The Financial Supervisory Service issued a consumer alert at the "risk" level on the 7th for the "Leveraged WTI Crude Oil Futures ETN." The Korea Exchange announced on the 9th that from the 13th, single-price trading will be implemented for ETNs with excessively large premium/discount rates. If the premium/discount rate exceeds 30% for five consecutive trading days, trading suspension until normalization is also anticipated.

◆"The Familiar Dollar in Daily Life Also Deserves Attention"= Due to concerns over economic slowdown and credit risk caused by the spread of COVID-19, expectations for a rise in the won-dollar exchange rate are increasing. This is why dollar investment, a representative safe asset, should be noted. Dollar investment methods can be divided into cash investment and financial product investment, similar to gold. Holding cash is the easiest method but the exchange fee of about 10 KRW per 1 USD can be a burden. There are also limitations for individuals in storing physical dollars.

Therefore, dollar deposits or financial product investments are considered suitable for individual investors. The most accessible product is dollar deposits. There are no restrictions on deposit amount or period, and deposits and withdrawals are free, making it suitable for ultra-short-term deposits. Another method is using products such as ETFs. These can be traded through securities firms’ HTS like stocks. Compared to physical trading, it is more convenient and can aim for higher returns like stocks. Since the composition, holding quantity, weight, and price are disclosed in real time, it offers transparency and the effect of diversified investment.