Investing in Gold

The popularity of gold as an investment destination is faltering. Certain banks are saying the gold rush is almost over. Though the price of gold on the global market is rising due to the falling value of the U.S. dollar, financial crises and inflation, the metal’s popularity is declining as the global financial market is recovering. In Korea, where people usually buy gold in dollars, the best time to invest in gold is when the greenback’s value and the price of gold rise simultaneously. Both the dollar and gold, however, are either stagnating or falling. The price of gold reached 46,036 won (38.50 U.S. dollars) per gram in Korea Friday, down from last month but up 20 percent from the end of last year.

The international price of gold was 340 dollars per ounce (31.10 grams) in 2003. It rose to more than 1,200 dollars in December last year and closed at 1,188 dollars last week. India and China, two countries which favor gold, have stocked up on the precious metal over the past several years and hedge funds seeking high returns have also hoarded gold. Conflicting prospects over the price of gold are raging. New York University economist Nouriel Roubini, who predicted the global financial crisis, has advised people not to invest in gold since its price is excessively high. This is in contrast to the opinion of Wall Street economist David Rosenberg, who also forecast the financial meltdown. Rosenberg says the price of gold could rise up to 3,000 dollars an ounce.

The international price of gold dropped eight percent early this month largely due to a rumor that an investor deposited 380 tons of gold in the Bank for International Settlements for 14 billion dollars. Investors fear that the bank, which holds 20 percent of the world`s annual gold production, will abruptly start selling gold. If people deposit gold due to fiscal crises, the global markets for finance and gold could fluctuate again.

LG Economic Research Institute said Seoul should purchase more gold as foreign currency reserves. Safe assets are more needed since the global price of gold could reach 2,000 dollars per ounce should inflationary pressure grow, it said. As of late last month, Korea had 14.4 tons of gold, ranking 56th among 100 countries. The amount is small compared to the size of the Korean economy, the world’s 15th largest. China (sixth with 1,054 tons), Japan (eighth with 765 tons), India (11th with 557 tons), and Taiwan (13th with 423 tons) continue to buy gold. Korea needs to consider purchasing more gold considering the global scramble for the metal, though not for investment purposes.

Editorial Writer Hong Kwon-hee (konihong@donga.com)