Gold Prices on the Rise: Should You Invest Now?

As global gold prices hit record highs, many are wondering whether now is the right time to invest in this precious metal. 

As global gold prices hit record highs, many are wondering whether now is the right time to invest in this precious metal. With growing market volatility, gold has become an increasingly attractive safe haven asset. This article explores the current trends in gold prices, the reasons behind its popularity as a hedge against economic uncertainty, and the best investment strategies for both beginners and seasoned investors.

1. Gold Prices at an All-Time High: What's Driving the Surge?

Gold prices have been on a remarkable upward trajectory recently. According to Bloomberg, the cost of the gold used in a 2024 Paris Olympics gold medal is now approximately $900 (about 1.23 million KRW). This is despite the fact that only 6 grams of the medal is made of gold, while the rest is silver. Globally, the price of gold has surpassed $2,400 per ounce, a significant increase from just above $2,000 per ounce earlier this year, representing a rise of over 20%.

In South Korea, the increase is even steeper due to the weakened KRW against the USD. According to the Korea Exchange, the price of gold per gram rose from 86,940 KRW at the beginning of the year to 108,800 KRW on August 12, a jump of 25%. As the stock market experiences extreme fluctuations, investor interest in safe assets like gold is growing. Gold, which offers no interest, becomes particularly attractive when interest rates fall.

2. When is the Right Time to Invest in Gold?

While gold may seem like an attractive investment, especially in times of uncertainty, financial experts advise against focusing solely on its price. Private bankers in South Korea suggest that gold should be viewed as a safe-haven asset to protect wealth rather than a tool for generating profit.

Sang-Won Suh, Deputy Director at Woori Bank’s TCE Center, advises, “Do not invest in alternative assets like gold or other commodities in isolation. Instead, consider incorporating them into a diversified investment portfolio that includes stocks and bonds. This can enhance portfolio stability, reduce risk, and improve returns."

However, he cautions against speculative bets on short-term price increases, noting that while gold prices may rise due to limited supply, they could fall if financial markets stabilize. Gold's attractiveness as a hedge against volatility diminishes once the markets regain stability.

3. Long-Term Investment Strategy for Gold

Many experts recommend a long-term investment approach for gold. Seon-Il Choi, a team leader at Shinhan PWM Seoul Finance Center, explains, "The demand for gold from central banks remains strong, and geopolitical risks from the Middle East continue to support gold prices. However, it's crucial to remember that even gold can lose value during a severe crisis."

Choi points out that during the recent "Black Monday," gold prices also fell, highlighting that in times of extreme market downturns, liquidity needs may drive investors to prefer cash over gold. Therefore, a long-term perspective—investing with a time frame of three to five years—is recommended to mitigate risks.

Hyun-Seop Kim, Head of the Hanam PB Center at KB Kookmin Bank, echoes this sentiment, suggesting that rather than buying with a six-month to one-year outlook, investors should consider a three-to-five-year horizon. He recommends a diversified approach, as the value of assets like gold and the dollar tends to increase when the financial environment deteriorates.

4. Gold Investment Options for Beginners

For those new to gold investing, it’s essential to understand the available options. Despite the recent upward trend, gold prices can be volatile. It's important not to jump in blindly.

One of the most accessible methods is "Gold Banking" offered by local banks. This option allows investors to buy gold in small increments (as little as 0.01 grams) and offers services like installment savings through automatic transfers. This is particularly advantageous for beginner investors.

Another option is investing in gold through the Korea Exchange (KRX). According to Kim, “Even investors with limited assets can benefit from gold's price stability during uncertain times by using KRX’s transparent and tax-free gold trading options, with the ability to withdraw physical gold if needed."

For those comfortable with digital platforms, Gold Exchange-Traded Funds (ETFs) provide an easy and flexible option, allowing gold to be traded like a stock.

5. Understanding the Downsides of Each Investment Option

While each gold investment method has its advantages, it’s essential to be aware of the potential downsides. For example, purchasing physical gold has the benefit of being exempt from capital gains tax, but it incurs high storage costs and requires a 10% value-added tax (VAT) at purchase.

Gold banking involves income tax on investment gains, and gold ETFs may attract dividend income tax and management fees. KRX gold trading is tax-free on transactions but includes various fees and VAT when converting to physical gold.

While gold can be a valuable addition to a diversified investment portfolio, it is essential to approach gold investment with a long-term perspective. Understanding the various options available, along with their advantages and disadvantages, will help investors make informed decisions. As with any investment, considering one's risk tolerance and financial goals is key. With gold prices at an all-time high and market volatility on the rise, now may be a good time to consider adding a touch of gold to your investment basket.