"Skyrocketing Gold Prices... What Is a Wise Investment Strategy?" [AK Radio]

Recently, the price of gold has been hitting record highs day after day, attracting the attention of investors. Experts analyze that the demand for gold investment is surging as it is recognized as a safe-haven asset. In particular, interest in gold is increasing further due to the Bank of Korea's interest rate cuts and the decline in deposit and savings interest rates at commercial banks. Let's take a look at the factors driving gold price increases and investment strategies.

Why is the price of gold rising?

Since the beginning of this year, the price of gold has surged by more than 30% compared to the end of last year. Currently, gold is priced at about 440,000 KRW per don (3.75g) and approximately 117,350 KRW per gram, reaching an all-time high. Compared to last year's lowest price, it has risen by about 42%.

▶ Variables such as inflation, interest rates, and the value of the dollar

Several economic factors are cited as reasons for the rise in gold prices. First, gold is a representative safe-haven asset. When inflation expectations rise or interest rates fall, gold prices tend to increase. In other words, when prices rise and the value of currency falls, gold is highlighted as a tangible asset that can protect against this. Additionally, the recent clear trend of interest rate cuts led by the United States is fueling the rise in gold prices. Furthermore, gold prices and the value of the dollar have an inverse relationship, so as U.S. interest rate cuts cause the dollar's value to decline, demand for gold increases accordingly.

▶ Geopolitical risks and central banks' gold purchases

Geopolitical risks also play an important role in the rise of gold prices. Various geopolitical risks such as the Russia-Ukraine war and unstable situations in the Middle East are stimulating demand for gold. The increasing market instability ahead of the U.S. presidential election next month is also one of the factors affecting gold prices.

Central banks' gold purchases are also a major factor driving gold price increases. Especially emerging countries such as China and India are steadily buying gold to diversify their foreign currency reserves, which further drives gold demand. Since gold and the dollar have an inverse relationship, the more dollars are circulated in the market, the higher the price of gold rises.

[Image source=Yonhap News]

How to invest in gold?

There are mainly two ways to invest in gold: buying physical gold and investing in gold investment products.

▶ Physical gold investment

Physical gold can be purchased in the form of gold bars or gold coins through banks, jewelry stores, or home shopping channels. However, purchasing physical gold may not be preferred due to additional costs such as manufacturing fees and commissions. When buying gold bars, a manufacturing fee of about 10% may be charged, and it is regulated so that cash purchases are not allowed, so caution is needed.

It is also possible to trade physical gold like stocks through the Korea Exchange's gold market. You can conveniently trade physical gold on the market in units as small as 1 gram through securities firms. While there is no tax on capital gains, a 10% value-added tax is imposed if you withdraw the physical gold.

▶ Gold investment financial products

There are gold banking (gold accounts) offered by banks and exchange-traded funds (ETFs). Gold banking is a product that allows investment in gold without physical gold, with free deposits and withdrawals. However, it is important to note that it is not protected by deposit insurance and a 15.4% withholding tax is applied on trading profits.

Gold ETFs, which can be traded like stocks, are also a method of gold investment. ETFs are convenient as they can be easily traded through securities firms, but futures investment products that directly bet on gold prices carry both high profit potential and significant risk of loss. Gold futures investment can be burdensome for individuals, so a cautious approach is necessary.

A word of advice!

Gold investment is recommended for those seeking stable investments. However, since the current gold price is at a peak, it is better to observe the trend and allocate about 10% of your portfolio when the price drops. As introduced earlier, there are various gold investment methods, so it is also important to diversify investments according to the situation.