By Park Hyong-ki
Staff Reporter
Investment in gold and gold-related funds is drawing greater attention from domestic investors as gold prices are expected to gain further on a lack of global supply and generally weak dollar, analysts said.
Usually, the value of the dollar and the price of gold have gone hand in hand in an inverse relationship. After steep gains Monday, the gold price corrected in line with a rebound in the value of the dollar. The gold price fell back into the high $720s Tuesday after reaching a 28-year high of $747 Monday on New York and London bullion markets. It compares with around $640 in mid-August.
But analysts said that the gold price, after short-term correction, is likely to resume its upward path as further dollar declines will likely take place on the weakening U.S. economy.
``Gold will remain as an attractive commodity for investment as demand is growing from the fast rising economies in India and China with the year-end gift season approaching,'' said Song Jae-hyeok, an economist of SK Securities.
Investors worldwide have been seeking gold as an alternative investment. Gold is considered as, and historically proven to be, a ``safer'' investment asset compared with equities and housing, he said.
Although gold prices could be affected by geopolitical risks, such an impact tends to be minor, as unlike energy and agricultural goods, gold is a recyclable commodity, analysts said.
Financial risks and the weakening of the dollar against other major currencies have generally buoyed the bullion markets worldwide as gold is seen as a way to hedge against such risk factors. Gold hit its peak in 1980 during the oil shock. Inflation fanned by high oil prices also boosts the gold price.
Subprime mortgage defaults have led the U.S. Federal Reserve to cut its key interest rate, stoking concerns about inflation as a result of low-borrowing costs and soaring oil prices. All these things will add downward pressure on the dollar _ the best time to invest in gold, analysts say.
However, the bullion market in South Korea is limited to local investors with only yet a small amount of funds investing in gold or companies with an interest in gold exploration and production.
Investment in gold is possible through various ways. Shinhan Bank sells ``Gold Riche'' deposit accounts enabling customers to deposit gold bars into the accounts.
Shinhan's Gold Riche accounts have produced about 20 percent return over the past year.
Merrill Lynch and IBK SG Asset Management sell offshore funds that invest in global gold mining and gold-related firms.
Merrill Lynch's ``World Gold Fund A2'' shows annual returns of nearly 50 percent.
However, analysts cautioned that gold prices could fluctuate and gold investment is vulnerable to foreign exchange losses as gold prices are denominated in dollars. It means a weaker dollar could cut into returns from higher gold prices.
``Liquidity for gold here is just not there yet,'' said SK Securities analyst Song. He said that gold trading and investing are in their initial stage in Korea.
Shinhan Bank and the Industrial Bank of Korea sell bullion bars that contain 99.9 percent fine gold.
Investors can buy and hold gold. But in that case buyers should shoulder margins for distributors and pay value-added taxes of 10 percent. At the same time, they will have difficulty holding the gold at home.