[Practical Finance] The Quieted 'King Dollar'... Focus on Gold Investment

Dollar Weakness Eases as Central Banks Increase Gold Purchases
Gold Bar Trading Faces Highest Fees and Taxes
Growing Interest in Gold ETFs on KRX Gold Market

[Asia Economy Reporter Hwang Yoon-joo] This year, gold is expected to attract attention as an investment asset. As expectations grow for the U.S. Federal Reserve (Fed) to slow the pace of interest rate hikes, the 'King Dollar' phenomenon is easing, which is likely to lead to a rise in gold prices. Additionally, concerns about an economic recession and gold purchases by central banks worldwide are also stimulating gold investment sentiment.

KRX Gold Market Trading More Advantageous than Physical Gold Investment

Gold investment can be broadly made through gold bars, gold accounts (Gold Banking), and the KRX Gold Market. To conclude, trading in the KRX Gold Market is more advantageous than physical investment. This is because fees, taxes, and exchange rate costs are relatively lower compared to gold bar and Gold Banking transactions.

First, gold bars can be traded at banks, post offices, and gold shops. Since it is a physical investment, a 10% value-added tax is applied when buying and selling. The fees are also the highest. Although they vary by seller, they are around 6%. Therefore, most purchases are made for special occasions such as a child's first birthday or parents' birthdays.

Gold Banking refers to an account for trading gold. When money is deposited into Gold Banking, gold can be bought and sold according to international gold prices. At this time, the exchange rate is important. Gold is purchased in dollars, and when selling gold, the amount converted into Korean won is credited to the account. If the gold price rises but the won depreciates (dollar strengthens), losses may occur, and if the gold price falls but the won appreciates (dollar weakens), exchange gains may be realized.

Last year, gold prices fell unexpectedly despite U.S. interest rate hikes. This was due to the so-called 'King Dollar' phenomenon. The won-dollar exchange rate surged from the high 1100 won range in January to the mid-1400 won range in September. Since then, it has been stabilizing rapidly. Despite high-intensity tightening, gold prices dropped from around $2,000 per ounce in March to about $1,600 per ounce in November. They have been rising again since then.

Gold Banking fees are also relatively high. However, since they vary by bank, careful comparison is necessary. When trading gold through Gold Banking, 0.5?1% of the transaction amount is charged as a fee. When withdrawing, about 4% of the total amount must be paid as a fee. The fee structure means that fees increase as gold prices rise. In particular, a 15.4% dividend income tax is applied to trading gains in Gold Banking. On the plus side, trading is possible from as little as 0.01g.

In the KRX Gold Market, gold can be bought and sold like stocks using a securities account. Trading is possible in 1g units. The fee is about 0.3%, significantly lower than Gold Banking. There are no capital gains taxes or dividend/interest income taxes. It is also excluded from comprehensive financial income taxation. Hong Chun-wook, CEO of Prism Investment Advisory, explained, "Gold is an asset without interest and with high fees, so it is recommended as a hedge for investors with a large proportion of U.S. stocks," adding, "If a long-term recession is expected, investing in gold is not a bad choice."

Among indirect gold investment methods, gold exchange-traded funds (ETFs) are representative. The biggest advantage of gold ETFs is that through the Mobile Trading System (MTS), you can trade whenever and for whatever amount you want.

In fact, since November last year, there has been a clear inflow of funds into gold ETFs. The ACE KRX Gold Spot ETF saw an inflow of 2.2 billion won each month for two consecutive months starting in November. For the KODEX Gold Futures (H) ETF, 2.3 billion won flowed out in October, but 4.4 billion won and 3.5 billion won flowed in during November and December, respectively. The recent three-month returns for the two ETFs were -1.06% and 9.05%, respectively.

Inflow of Market Funds into Gold ETFs

However, when investing in gold ETFs, it is important to distinguish between futures and spot gold. Spot gold ETFs have the advantage of no 'rollover' costs. However, since it is a physical investment, storage fees and other costs occur. ETFs tracking futures incur 'rollover' costs when contracts mature and are reinvested in other products. Also, spot gold ETFs can be invested in through retirement pension and individual retirement pension (IRP) accounts, but futures ETFs are classified as derivatives and cannot be invested in through these accounts. An official from a management company explained, "Funds take three business days to be deposited after redemption decisions, but gold ETFs can be traded immediately whenever you want, which is why many people prefer them," adding, "However, gold ETF products also deduct a 15.4% dividend income tax on profits."

Gold funds also attract attention during periods of interest rate hikes. This is because, on average, funds investing in gold mining companies have performed better than gold futures indices during rate hike periods. Among gold funds, 'IBK Gold Mining Securities Investment Trust 1' is representative of funds investing in gold mining companies. It has achieved a 30% return over the past three months. About 60% of its trust assets are invested in listed companies related to gold mining. It holds a large proportion of stocks in global gold mining companies such as Newmont and Barrick Gold in the U.S. A securities company official explained, "Gold funds can be seen as a type of stock investment in gold mining companies," adding, "When the base interest rate rises, funds tend to move to safe assets, and gold mining companies also benefit."