SEOUL, July 30 (Yonhap) — A growing number of South Korean investors are scrambling to buy gold in search of high returns amid a prolonged low-rate trend, sources said Thursday, apparently believing the price of the precious metal has bottomed out.
The global gold price fell to US$1,092.60 per ounce on Wednesday (local time) in New York, the lowest level in five years. It has plunged more than 40 percent in the past four years, after nearly touching the record $2,000 line in 2011.
Leading investment bank Goldman Sachs earlier forecast that the gold price will likely fall below the $1,000 level later this year.
South Korean investors, who are seeking new high-return investment vehicles amid a low-rate trend at home, are rushing to buy the bullion. Woori Bank, South Korea’s second-largest bank by assets, saw the deposits of so-called gold banking soar 44.8 percent to 21 billion won ($18.1 million) as of July 24 from 14.5 billion won at the end of January.
In June alone, the amount rose a net 1.4 billion won, while it increased a net 1.6 billion won in the first 24 days of July, said Woori Bank.
The gold banking business refers to a financial instrument under which the account holder can buy gold without transferring physical gold bars, and make a capital gain if there is an appreciation in the gold price.
No. 2 Shinhan Bank said its gold banking business deposits stood at 445.5 billion won as of end-June, up 3.7 percent, or 15.9 billion won, from 429.6 billion won four months earlier.
“As the gold price slid at a faster pace in recent weeks, the daily transactions of gold banking accounts have risen sharply,” said an official at Shinhan Bank. “We also receive frequent telephone inquiries from customers.”
Investors are also dabbling in purchasing real gold bars, with Kookmin Bank’s gold bullion sale nearly doubling to 5.8 billion won in June from 3 billion won in May.
But gold prices could further slide down the road due to potential interest rate hikes in the U.S.
“The gold price is on a freefall since it broke the psychological level of $1,260 per ounce,” said Kim Hyun-shik from Kookmin Bank. “As the United States is expected to raise the rate, the gold price can go down further. Thus, gold investments can cause a huge loss to investors.”