Yoon Ja-young is in charge of articles translated by a generative AI system and edited by The Korea Times. She is interested in improving the newspaper through AI.
Investors shifting toward safe assets
Sales of gold bars have doubled in the last three months as investors shift to safe assets amid concern over the global economy. / Korea Times file
By Yoon Ja-young
By Yoon Ja-young
Concern over the global economy, triggered by plunging oil prices and Russian instability, is pushing investors to seek gold, bonds and other safer assets.
Both affluent and ordinary investors are buying gold and deposits at banks despite historically low interest rates.
“As the media continues talking about deflation, our customers seem to find gold as the only attractive investment that can survive the economic crisis,” said Chris Kim, who runs a gold and jewelry shop in Jung-gu, downtown Seoul.
According to the Korea Gold Exchange, sales of gold bars reached 160 kilograms in the past two weeks, with the December figure expected to reach a record 250 kilograms, twice the sales of September.
It is notable that seven out of 10 gold investors are small-sum investors, who seek either 37.5-gram gold bars or 10-gram gold bars, instead of the 1kg gold bars that affluent investors usually invest in.
This reflects the fact that gold investment is expanding to the general public.
Kim also said, "These days, I have many customers who come to buy one or two ‘don’ of gold. They buy it purely for investment because it is not in the form of a ring or ornament.”
A don is a traditional Korean weight unit equal to 3.75 grams.
However, analysts are pessimistic about gold prices. They say gold is likely to weaken due to a strengthening of the dollar, despite concerns over deflation.
“Amid a strengthening of the dollar, gold is facing downward pressure,” said Hana Daetoo Investment and Securities analyst Ko Eun-jin.
“As it is difficult to expect a mid-to-long term rebound, a further rise of the gold price is likely to be difficult above $1,200 an ounce. Sell orders will (be allowed->continue) once it reaches the level.”
The gold price has been on a roller coaster ride, soaring to $1,899 an ounce in September 2011 from around $1,000 in early 2010. The price then fell to near $1,100 in November this year.
However, gold is not the only safe asset attracting investors. People are also turning to deposits, despite record low interest rates.
Balance of time deposits at local banks fell by more than 2 trillion won as investors sought better returns after the Bank of Korea cut the key rate by 0.25 percent in August.
However, the preference for risky assets was short-lived. Although the central bank cut the key rate by another 0.25 percent in October, more than 3.7 trillion won flowed back into time deposits.
This contrasts with equity funds, which had a 300 billion won outflow this month. Investors are shunning equity funds due to the poor performance of the stock market. The KOSPI closed at 1,897.50 last Friday, down 5.66 percent from the 2013 closing price. The Seoul bourse had the sixth-biggest fall among 28 major markets.
Businesses are also piling up cash.
The Korea Institute of Finance expects the preference for safe assets to continue next year, citing increasing volatility and uncertainties in the global financial market.