🚨 Safe Haven Preference, Gold Price Truly Becomes Worth Its Weight
Today Korean Economic News | 2025.02.13
📌 "Gold Price Truly Becomes Worth Its Weight... 2-3 Times More Visitors Than Usual"
💬 With the recent surge in gold prices, the jewelry district in Seoul's Jongno 3-ga is bustling with visitors. International economic uncertainty and political turmoil are stimulating a preference for safe haven assets, driving gold prices higher.
1️⃣ Easy to Understand
Recently, with gold prices rising significantly, it's reported that 2-3 times more people than usual are visiting the jewelry district in Seoul's Jongno 3-ga. Why is the price of gold suddenly rising, and why are people trying to buy or sell gold? Let me explain this simply.
Gold is a precious metal that has been valued for a long time. It's particularly famous as a 'safe haven asset' that people seek when the economy is unstable or the future is uncertain. Even when stocks fall, real estate wobbles, and currency values become unstable, gold tends to maintain its value or even rise.
As of early 2025, the international gold price has exceeded $2,600 per troy ounce. This is about a 25% increase compared to early 2024, continuously breaking all-time highs. In Korea, the price of gold per don (3.75g) has exceeded 400,000 won, also recording an all-time high.
Why is the price of gold rising like this? There are three main reasons. First, global economic uncertainty has increased. The trade conflict between the US and China, strengthening of protectionist policies by the Trump administration, and slowing global economic growth are increasing economic anxiety. Second, political turmoil and geopolitical tensions in the Middle East are escalating. The Israel-Hamas conflict and tensions surrounding Iran are increasing international instability. Third, central banks around the world are increasing their gold purchases. In particular, countries like China and Russia are continuously increasing their gold holdings to reduce their dependence on the dollar.
In this situation, the Jongno jewelry district is seeing 2-3 times more visitors than usual. Visitors can be divided into two groups. One group consists of people who expect gold prices to rise further and want to purchase gold for investment purposes. The other group consists of people who think now is the opportunity to sell because gold prices have risen. There are also more people coming to sell old gold jewelry or gold bars.
Gold investment has both advantages and disadvantages. It has the advantage of preserving value during economic crises as a safe haven asset, but it also has disadvantages such as storage costs and no returns like dividends or interest. Also, since gold prices have already risen significantly, there needs to be consideration about whether now is an appropriate time to enter. Experts advise that if you're considering gold investment, it's appropriate to allocate about 5-10% of your entire portfolio.
2️⃣ Economic Terms
📕 Gold
Gold is a precious metal with a long history that plays an important role as a monetary value and investment asset.
- Gold has been recognized as a store of value due to its characteristics such as scarcity, durability, divisibility, and portability.
- There are various forms of gold investment including physical gold (gold bars, coins), gold ETFs, and gold mining stocks.
📕 Safe Haven Assets
Safe haven assets refer to investments that tend to maintain or increase in value during times of economic uncertainty.
- Gold, US Treasury bonds, Japanese yen, Swiss franc, and the dollar are considered representative safe haven assets.
- When market instability increases, a 'flight to safety' phenomenon occurs where investors' funds move to safe haven assets.
📕 Hard Assets
Hard assets are assets with physical forms such as gold, real estate, and artwork, used as a means of hedging against inflation.
- Hard assets tend to maintain their real value even when currency values decrease during inflationary periods.
- Unlike financial assets, they have physical form, so costs for storage, transportation, and insurance may occur.
📕 Gold Spot Price
International gold price refers to the price of gold traded in the international gold market, typically expressed in US dollars per troy ounce.
- The London Bullion Market Association (LBMA) Gold Fix is used as the international benchmark price.
- Gold prices are traded 24 hours a day, with trading taking place in major financial centers such as New York, London, Zurich, Hong Kong, and Singapore.
3️⃣ Principles and Economic Outlook
💡 Background and Drivers of Gold Price Surge
The recent steep rise in gold prices is the result of complex economic and geopolitical factors working simultaneously.
First, expanding global economic uncertainty is increasing demand for gold. The world economy is facing increased uncertainty due to the strengthening of protectionist policies by the Trump administration, deepening US-China trade conflicts, and slowing economic growth in major countries. In particular, the expanded tariff imposition being pursued by President Trump's second administration is expected to have a negative impact on global trade and economic growth, which is becoming a factor enhancing the appeal of gold as a safe haven asset. According to the International Monetary Fund (IMF) outlook, the global economic growth rate in 2025 is expected to remain at a lower-than-expected level of 3.1%.
Second, escalating geopolitical tensions in the Middle East are amplifying uncertainty. Instability in the Middle East is increasing with the prolongation of the Israel-Hamas conflict, tensions between Iran and the West, and threats to maritime shipping in the Red Sea. Historically, geopolitical crises have been one of the major factors in gold price increases, and the current situation follows this pattern. In particular, concerns about energy supply disruptions and rising logistics costs can act as inflationary pressures, increasing demand for gold as an inflation hedge.
Third, increased gold purchases by central banks around the world are forming an important axis of gold demand. According to the World Gold Council, global central banks' gold purchases in 2024 exceeded 1,000 tons, and this trend is expected to continue in 2025. In particular, central banks of emerging countries such as China, Russia, and India are increasing their gold holdings to reduce dollar dependence and diversify foreign exchange reserves. In the case of China, it is known to have purchased an additional approximately 200 tons of gold during the year 2024 alone.
Fourth, prospects for changes in US monetary policy are also affecting gold prices. As the view that the Federal Reserve (Fed) will begin interest rate cuts in the first half of 2025 becomes predominant, this is acting as a factor for dollar weakness and gold price strength. Generally, when interest rates decrease, bond yields decrease, which has the effect of lowering the opportunity cost of gold, a non-interest-bearing asset. Also, interest rate cuts are likely to lead to a decrease in dollar value, and gold and the dollar tend to move in opposite directions.
With these various factors working in complex ways, gold prices are breaking all-time highs, and this situation has structural characteristics that are difficult to resolve in the short term. In particular, as long as economic uncertainty and geopolitical risks persist, demand for gold as a safe haven asset is likely to remain robust.
💡 Current Status of the Domestic Gold Market and Investment Trends
The domestic gold market is thriving following the surge in international gold prices, and there are notable changes in investor behavior as well.
First, physical gold transactions are becoming active, centered around the Jongno jewelry market. Jewelry districts around Jongno 3-ga and Jongno 4-ga are seeing 2-3 times more visitors than usual. According to the Korea Precious Metals Association, the transaction volume in the Jongno area jewelry market in January 2025 increased by about 150% compared to the same period last year. A characteristic of the transactions is that both buying and selling are active. There is an increase in both people buying for investment purposes expecting gold prices to rise and people trying to sell at high prices.
Second, individual investors' gold investment methods are diversifying. In addition to traditional physical gold (gold bars, gold coins), indirect investment methods such as gold ETFs and gold-related funds are also gaining popularity. The net asset size of major domestic gold ETFs has significantly increased from 500 billion won at the end of 2024 to 800 billion won as of February 2025. This shows that there are increasing numbers of investors who want to enjoy the benefits of gold price increases without the hassle of storage, insurance, and authenticity verification of physical gold.
Third, with the popularization of gold investment, the investor demographic is also diversifying. In the past, gold investment was primarily done by the elderly or wealthy, but recently there has been a notable influx of younger investors including the MZ generation (Millennials + Generation Z). According to user data from online gold trading platforms, the proportion of investors under 30 has significantly increased from 15% in 2023 to 28% as of 2025. They tend to prefer a 'gold accumulation' method where they start with small amounts and purchase gold regularly.
Fourth, innovation and increased accessibility of gold-related financial products are occurring. Banks and securities companies are launching various products in response to increased interest in gold investment. Products such as loans with physical gold as collateral, derivatives linked to gold prices, and gold accumulation products that can be started with small amounts are gaining popularity. Services for easy gold trading through mobile apps are also expanding, increasing accessibility to gold investment.
Fifth, caution against gold-related fraud and illegal transactions is also becoming necessary. With the surge in gold prices, there is an increase in consumer damage cases such as selling fake gold as real, illegal multi-level gold investment recruitment, and gold trading through unauthorized online platforms. The Financial Supervisory Service has recently issued a warning against gold-related investment fraud and recommends that consumers trade through certified institutions and companies.
These changes in the domestic gold market reflect changes in perception about asset allocation and risk management beyond simple investment trends. In particular, interest in the role of gold as a portfolio diversification and inflation hedge means is increasing in a situation of heightened economic uncertainty, which can be seen as related to the improvement of financial market maturity.
💡 Gold Investment Outlook and Considerations
It is necessary to examine the future outlook for gold prices and factors to consider when investing.
First, the short, medium, and long-term outlook for gold prices is determined by various variables. According to forecasts from major investment banks and financial institutions, gold prices in 2025 are expected to move within the range of $2,400-3,000 per troy ounce. In the short term, there is a possibility of adjustment given that a considerable rise has already occurred, but downside risk is likely to be limited as long as geopolitical tensions and economic uncertainty persist. In the medium to long term, factors such as continued gold purchases by central banks, increased gold demand in emerging countries, and challenges to dollar hegemony are expected to support gold prices.
Second, balance in portfolio composition is important when investing in gold. Financial experts generally recommend allocating about 5-10% of the entire investment portfolio to hard assets like gold. Gold has a low correlation with traditional financial assets such as stocks and bonds, providing a diversification effect, and it plays a role in reducing portfolio volatility especially during periods of high market instability. However, since gold does not provide regular returns like dividends or interest, balance with income-generating assets is necessary.
Third, when choosing a gold investment method, one should consider the characteristics and pros and cons of each method. Physical gold (gold bars, coins) has the advantage of direct ownership and no intermediary risk, but there are issues with storage, transportation, insurance, and authenticity verification. Gold ETFs or funds have high liquidity and convenient trading but carry the credit risk of the issuing institution. Gold mining-related stocks can expect larger returns when gold prices rise due to leverage effects, but they are exposed to individual company management risks and market risks. It is important to choose an investment method that matches the investor's purpose, timeframe, and risk appetite.
Fourth, tax and cost aspects of gold investment should also be considered. In Korea, value-added tax (10%) is imposed when trading physical gold, which is a factor causing immediate investment return decreases. Also, when investing through financial products such as gold ETFs, trading fees, storage costs, and management costs may occur, so these should be considered when calculating actual returns. From a tax perspective, since the Financial Investment Income Tax has been implemented since 2023, gold investment gains through financial products are also being taxed.
Fifth, a balance between market timing and a long-term perspective is needed. Indiscriminate chase buying can be risky in a situation where gold prices have already recorded all-time highs. Gold investment should be approached in terms of long-term portfolio stabilization and asset value preservation rather than short-term price difference gains. It's worth considering a dollar-cost averaging strategy to disperse price volatility risk rather than one-time purchasing.
Overall, gold investment can be an effective strategy in terms of portfolio diversification and risk management in the current uncertain economic environment. However, like any investment, gold investment should also be based on sufficient information and understanding, aligned with individual financial goals and risk appetite. Above all, it is important to approach from a long-term asset allocation perspective rather than being swayed by short-term volatility of gold prices.
4️⃣ In Conclusion
The surge in gold prices and vibrancy of the Jongno jewelry market reflect the uncertainty of the global economic environment and investors' preference for safe haven assets beyond simple market phenomena. Complex factors such as strengthening protectionist policies by the Trump administration, geopolitical tensions in the Middle East, and concerns about global economic growth slowdown are driving gold price increases, and this trend is likely to continue for the time being.
Gold investment has historically attracted attention during periods of heightened economic uncertainty. The current situation is no exception. Gold can play an important role as an inflation hedge and portfolio diversification tool. In particular, its low correlation with traditional financial assets such as stocks and bonds contributes to reducing the volatility of the overall portfolio.
However, there are also several points to note about gold investment. Gold does not provide regular returns such as dividends or interest, and storage costs may occur. Also, if you start investing at a point where considerable price increases have already occurred, you should be prepared for the possibility of short-term adjustments. Financial experts generally recommend allocating about 5-10% of the entire portfolio to hard assets like gold.
A cautious approach is also needed in choosing an investment method. There are various investment vehicles such as physical gold, gold ETFs, gold funds, and gold mining stocks, and one should understand the pros and cons of each and choose a method that matches one's investment purpose and tendencies. Especially in Korea, value-added tax is imposed when trading physical gold, so an investment plan taking this into account is necessary.
The phenomenon of visitors flocking to the Jongno jewelry market shows a change in public perception of the economic environment beyond a simple investment trend. If in the past gold was primarily purchased for jewelry purposes, now the role of gold as a means of asset preservation and investment is becoming more important. This also reflects the improvement of the domestic financial market's maturity and the change in investors' perception of asset allocation.
From the perspective of the international gold market, the increased interest in gold among Korean investors is also consistent with global trends. According to a report from the World Gold Council, gold demand in 2024-2025 is increasing evenly across various sectors including investors, central banks, and the jewelry industry. In particular, increased gold purchases by emerging country central banks and expanded geopolitical uncertainty are expected to act as factors supporting gold prices for the time being.
Finally, several balanced approaches are needed for general investors considering gold investment. One should consider the role of gold from a long-term asset allocation perspective rather than being swayed by short-term price fluctuations. It is advisable to maintain the principle of diversified investment and avoid excessive concentrated investment. Also, it is important to use reliable information sources for informed decision-making and seek expert advice when necessary.
In conclusion, the surge in gold prices and vibrancy of the Jongno jewelry market show an aspect of the economic uncertainty we currently face. Gold has historically proven its value during economic crises and instability, and the current situation is also an extension of that pattern. Investors can realize the true value of gold investment when they understand these characteristics of gold and approach it in a balanced way as part of the overall portfolio composition. It is a time when wisdom is important to focus on asset value preservation and risk management from a long-term perspective without being swayed by market noise.