[Practical Finance] Unpredictable Trump Drives Safe Asset Rush to 'Gold'

Gold Hits Record High, Up 40% in One Year
Impact of Trump Administration's Tariff Policies
Global Central Banks Expected to Continue Gold Purchases
Various Investment Methods: Physical Gold, ETFs, Gold Accounts, and More

Global stock markets are shaking due to U.S. President Donald Trump's tariff policies. As the dollar also experiences a rollercoaster policy leading to a sharp plunge shock, investors worldwide are flocking to gold. With gold prices reaching an all-time high, experts expect gold demand to continue for the time being.

Gold Prices Reach All-Time High

According to the World Gold Council (WGC) on the 15th, the price of gold per ounce reached $3,237.93 on the 13th. This is an all-time high, rising about 40% within a year. Gold prices have surged sharply since the Trump administration took office. In particular, after the announcement of reciprocal tariffs on the 2nd (local time), prices rose 4% within just one week.

The recent sharp rise in gold prices is due to increased economic uncertainty caused by the Trump administration's extreme tariff policies. After the announcement of reciprocal tariffs, the U.S. Nasdaq index plunged 13.26% over five trading days until the 8th. However, when the Trump administration announced on the 9th that reciprocal tariffs would be postponed for 90 days for countries excluding China, the Nasdaq index rose 12.16% in one day, marking the second-largest increase in history.

Domestic gold prices are also on the rise. In the Korea Exchange (KRX) gold market, 1kg of gold spot (24K, 99.99% purity) closed at 148,400 KRW per gram on the 14th, approaching 150,000 KRW. This is close to the highest price recorded in February.

As the international gold price surpassed $2,500 per ounce, the price of a single gold bar exceeded $1 million for the first time in history. On the 20th, an employee at the Korea Gold Exchange Jongno Main Branch in Jongno-gu, Seoul, is organizing gold bars. Photo by Jinhyung Kang aymsdream@

Central Banks Worldwide Increase Gold Purchases

The general factor determining gold prices is demand. Since gold production is inelastic, prices rise according to demand. Among these, demand from central banks worldwide has a significant impact. From 2010 to 2021, the average amount of gold purchased by central banks worldwide was 481.36 tons. During this period, gold prices per ounce mostly stayed below $2,000, except for a brief spike during the COVID-19 pandemic.

However, following Russia's invasion of Ukraine in 2022 and the war between Israel and Hamas, geopolitical tensions increased, prompting central banks worldwide to significantly increase gold purchases. While gold purchases were only 450.11 tons in 2021, they more than doubled to 1,080.01 tons in 2022, followed by 1,050.81 tons in 2023 and 1,044.63 tons in 2024, marking three consecutive years of over 1,000 tons purchased. As a result, gold prices surpassed $2,000 per ounce and have now broken through the $3,000 ceiling.

Another major factor determining gold prices is the U.S. dollar and inflation. Gold prices tend to rise when the dollar is weak and inflation is high. Since gold is traded in dollars and serves as a store of value, it partially substitutes for currency value. On the 14th, the Dollar Index, which measures the dollar's value against six major currencies, slightly rebounded after plunging to 99.00 on the 11th but remained below 100 at 99.81. The Dollar Index has fallen more than 9% from its January peak, fueling the rise in gold prices.

Gold prices are expected to continue their upward trend for the time being. According to a survey conducted by the WGC last year targeting central banks in 68 countries, 69% of respondents said they plan to increase their gold holdings within the next five years. The combination of a weak dollar, high inflation, and increased gold demand is expected to keep gold prices strong.

In its 'Gold Demand Trends' report released in February, the WGC explained, "We believe that armed conflicts leading to global trade and economic tensions could strengthen the trend of net purchases by central banks," adding, "This is partially confirmed by the recovery and expansion of gold demand in the fourth quarter of last year."

Jeon Gyu-yeon, a researcher at Hana Securities, said that concerns over trade disputes that have grown since the Trump administration took office will further stimulate gold prices. He said, "If U.S. tariffs are implemented, concerns over rising import prices will increase demand for inflation hedges," adding, "Uncertainty over trade disputes is stimulating preference for safe-haven assets."

Various Ways to Invest in Gold... Should Be Considered According to Preferences and Needs

There are various ways to invest in gold.

First, one can purchase physical gold by visiting gold shops, the Korea Gold Exchange, or banks. The common form of physical gold, gold bars, are sold in various units such as 10g, 100g, and 1kg. However, purchasing gold bars involves a 10% value-added tax and a 3-5% transaction fee. This means investors start with a 15% loss from the outset.

The easiest way is to invest in gold-related Exchange-Traded Funds (ETFs). These can be traded like stocks through securities firms' applications, making it convenient. They can also be invested in through retirement pension accounts, which is advantageous for preparing retirement funds. However, when trading through a general account, a 15.4% dividend income tax is deducted from capital gains.

Banks also offer gold accounts for customers who find storing physical gold burdensome. Having a gold account allows investment from very small units as low as 0.01g. Additionally, it is convenient to check how the balance changes according to gold price fluctuations through the account. The downside is that a 15.4% dividend income tax applies to capital gains.

Gold can also be bought and sold like stocks. By opening a gold trading account at a securities firm, investors can trade through the Korea Exchange (KRX) gold market. The trading unit is 1g, and an online trading fee of about 0.3% is charged each time. It is important to note that a 10% value-added tax must be paid when taking physical delivery.