MZ Generation Awakens to Safe Assets... Recovering Gold Savings and Gold Bars (Comprehensive)

Recovery Trend in Gold Savings Accounts Seen in June Amid Prolonged COVID-19 and Cryptocurrency Slowdown

[Asia Economy Reporters Kiho Sung and Jinho Kim] Due to the prolonged COVID-19 pandemic and the sharp decline in cryptocurrencies, gold-related products are gaining popularity. In particular, the 20s and 30s MZ generation, exhausted by soaring housing prices beyond what their existing income can handle and the high volatility of stocks and coins, are flocking to gold as a safe asset, and the popularity of gold is expected to continue for the time being.

According to the financial industry on the 22nd, 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 (661.3 billion KRW). The gold account balance increased from 632.7 billion KRW in January to 621.9 billion KRW in February, then rose 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 decreased in June (661.3 billion KRW). Generally, when U.S. interest rates rise, the dollar value increases, causing gold prices to lose popularity.

However, with gold prices recovering this month, the popularity of gold accounts is rising again. 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 gold price 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 were 65.5 kg. Gold bar sales, which had sharply decreased from 105.1 kg in April to 89 kg in May, surged to 145.9 kg in June when prices were lower.

The renewed popularity of gold as a safe asset is due to the global spread of the COVID-19 Delta variant, which has made economic recovery difficult, and the recent sharp decline in cryptocurrencies that had been in the spotlight. Cryptocurrencies, which caused a frenzy with the idea of "avoiding sudden poverty," have seen prices of most coins drop nearly 50% in the past two months. According to Upbit, Korea's largest cryptocurrency exchange, only one out of 102 coins increased in price over the past three months. The stock market continues to face daily debates over its high points.

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 moves according to international gold prices. It allows small-scale gold investment and can be redeemed anytime desired. Transaction fees are around 2%, cheaper than buying gold bars. Because of this, despite transaction fees and a 15.4% dividend income tax, gold accounts remain popular.

Accordingly, gold investment has begun to be recognized as a good investment destination that simultaneously offers "stability and profitability," especially among the MZ generation. They are turning to gold as a "safe asset" due to the burden of investing in highly volatile cryptocurrencies and the stock market, which continues to hit new highs daily.

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, a 13.8% increase compared to the previous year. The average daily trading volume also rose 19.4% to 126.2 kg during the same period.

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 from trading, and value-added tax is exempted for on-exchange transactions. Transaction fees are also lower compared to general investment products.

A Korea Exchange official said, "With the expansion of global economic uncertainty, the importance of safe assets is highlighted, and gold is gaining attention," adding, "The rapid growth of the gold market is due to increased participation by young investors."