Gold Prices Soar... How Koreans Invest in Gold [Chosun Price Records]

Gold price per don increased from 360,000 to 480,000 won
Various gold tech methods including physical and ETF options

As geopolitical risks in the Middle East increase concerns in the global financial markets, more investors are turning to gold. Classified as a representative safe-haven asset, gold prices have surged by more than 30% this year. With forecasts predicting further price increases and a variety of financial products allowing investment in small amounts as well as physical purchases, gold is gaining popularity as a financial investment tool among Koreans.

A photo of gold bars is displayed at a jewelry store in Seoul. Photo by Yonhap News

On the 6th, Mr. Kim, in his 50s, who runs a gold shop in Jongno-gu, Seoul, stated that while customers who used to visit to buy stone rings have sharply decreased due to the rise in gold prices, many customers now visit the store to buy gold for investment purposes. Mr. Kim said, "Out of 10 customers who come to the gold shop, 3 to 4 buy gold for investment purposes," adding, "Since gold prices have risen significantly this year, people think it is better to buy gold and hold it rather than tying up money in savings. Many people with extra funds inquire about purchasing gold."

Gold investment is divided into two methods: purchasing physical gold directly and subscribing to gold-related financial products. Physical investment means buying gold bars, etc., directly at gold shops or the Korea Gold Exchange. Purchasing processed products such as gold bars, gold coins, and jewelry and storing them is one way, but recently, as gold prices have become expensive, many people are buying gold bullion to save on processing fees. However, physical gold investment requires consideration of a 10% value-added tax imposed at purchase, fees, and storage costs, making it difficult to profit unless gold prices rise more than 15%.

Opening a gold account, known as gold banking, to buy and sell gold is another method of gold investment. It allows gold purchases in units as small as 0.01g, enabling small investments, and installment investments through automatic transfers are also possible. It has the advantage of not needing to store physical gold separately. However, 15.4% withholding tax is applied to capital gains, and it is not protected under the Depositor Protection Act. Another option is using the KRX gold spot account, which offers tax benefits. This method involves trading gold on the Korea Exchange, and investors can open a securities account and invest like stocks. Small investments are possible in 1g units, with securities company fees around 0.2?0.3%. However, if you want to withdraw gold in the form of gold bars later, a 10% value-added tax must be paid.

Gold-related exchange-traded funds (ETFs) are also representative financial investment products. ETFs based on gold as the underlying asset are traded like stocks. With just a securities account, ETFs can be easily bought and sold like stock trading. Gold futures investment is also possible. Gold futures are derivative products that bet on future changes in gold prices. While they can yield high profits, they also carry high risks of loss, so caution is necessary. A 15.4% income tax is also applied.

[Image source=Yonhap News]

Will the gold price rise continue until next year? ... Price outlook

On the 3rd, gold futures traded on COMEX, the largest gold futures exchange in the U.S., rose 0.35% from the previous trading day to $2,679.20 per ounce. International gold prices have risen about 30% from $2,073.40 per ounce on January 2 this year to recently.

Physical gold prices have also surged. According to the Korea Gold Exchange, the price of one don (3.75g, purchase basis) of pure gold was 485,000 KRW on the 4th, up 31.79% from 368,000 KRW on January 2 this year.

The rise in gold prices is due to unstable international conditions. When political and economic uncertainties increase, demand for gold, considered a safe investment, tends to rise, pushing prices up. Currently, Russia and Ukraine have been at war for over three years, and geopolitical risks in the Middle East have intensified due to Iran's missile attacks toward Israel, creating a strong preference for safe-haven assets.

Recent gold purchases by central banks worldwide have also contributed to the rise in gold prices. Since 2022, central banks have been actively managing their gold reserves. According to a report by the World Gold Council (WGC) in June, the net gold purchases by central banks worldwide reached 1,037 tons, the second-highest record following 1,082 tons in 2022. Additionally, expectations that the U.S. Federal Reserve (Fed) will cut interest rates further in November after the big cut (0.50 percentage points) in September is another reason for rising gold prices. When interest rates fall and currency values are expected to decline, gold prices tend to rise.

There are also forecasts that gold prices will exceed $2,900 per ounce next year. Goldman Sachs raised its gold price forecast for early next year from $2,700 to $2,900. Goldman Sachs stated, "We expect short-term interest rates in Western countries and China to fall faster," adding, "Global interest rate declines, structurally increased central bank demand, and gold's hedging characteristics against geopolitical and recession risks will gradually be reflected in gold prices."