South Koreans Buying Up Physical Gold

South Koreans have embarked on a gold buying spree.

Residents of the Asian country are on pace to purchase a record amount of gold in 2015. By year’s end, total sales will likely top 1 trillion won ($860 million) based on first-half sales through Korea Gold Exchange 3M Co Ltd, the country’s largest gold merchant.

Worries that a meltdown in China’s stock markets will destabilize South Korean equities, and a desire to replenish a traditional store of value in an era of low interest rates, appear to drive the buying spree, according to a Reuters report.

Song Jong-gil, general director for sales at Korea Gold Exchange 3M, said that of the more than 500 billion won of gold sales the company made in the first half of 2015, more than 20 percent went to financial investors in the form of thin cards and bars ranging in weight from 1 gram to 1 kg.

“‘Low interest rates are the biggest reason. And gold is preferred to stocks and real estate thanks to high liquidity,’ Song said, adding sales picked up as bullion dropped below $1,100 an ounce.”

South Koreans traditionally view gold as a safe haven and a long-term store of value. According to Reuters, South Koreans hold an estimated 800 metric tons of gold in households and private vaults.

During the 1997/98 Asian financial crisis, the authorities launched a campaign to buy gold from patriotic individuals, selling it on to get dollars to bolster foreign reserves.

“‘Lots of people sold gold during the Asian financial crisis. Then prices surged and many were unable to buy back,’ Song said. ‘Now people are buying gold rings and small bars, thinking prices have fallen a lot and it’s a good time to buy.'”

The same dynamics driving the gold buying spree in South Korea exist in the United States as well. Interest rates remain low, and while many think the Fed will eventually boost rates this year, as Peter Schiff points out, this is hardly a forgone conclusion. Additionally, as the Koreans understand, owning gold historically provides protection from fiat money and central bank policy.

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Benjamin Thomas 3 years ago Member's comment

I think gold is going to see a huge drop at some point. While gold has reliably held its value when other currencies failed for thousands of years, its worth is based on it being rare and shiny. The main reason it is so rare is that it is heavy, so when the earth was young most of it sank deep underground. Some day we will discover a huge vein deep underground and the price will drop before we even get around to mining it or we might even find a gold rich asteroid. We don't even need to mine it. The discovery alone would be enough to destroy the market for this nearly useless metal.

R BP 3 years ago Member's comment

It is used in electronics a lot in the mobile phone industry alone in or around 400 million dollars worth of Gold is used per year (and rising).

It is an excellent conductor so just like Diamonds as well as being shiny and people liking them they do have practical industrial applications.

Even if some day a huge vein is discovered deep underground there are massive cost implications involved with extracting resources from deep underground MASSIVE cost implications which will stop any long term crash in the price all though it might cause a temporary panic.

The fact is as time moves on and the number of electronic devices people use on a day to day basis increase and get smaller gold will have a steady increase in demand.