The enthusiasm for gold investment is waning. After surpassing 2 trillion won earlier this year, the balance of gold banking at banks has dropped to 1.7 trillion won, and sales of gold bars at one major bank have decreased by more than 60% compared to the beginning of the year. This decline is attributed not only to the decrease in valuation due to adjustments in gold prices but also to a reduction in the actual amount of gold held by customers.
According to the financial sector on September 22, the combined balance of gold banking at KB Kookmin, Shinhan, and Woori banks was reported at 1.7753 trillion won as of September 18. After surpassing 1 trillion won for the first time in March of last year, the balance surged to 2.4435 trillion won in January of this year but has since decreased by 668.2 billion won, or 27.3%.
The balance of gold banking saw a brief rebound from 1.7159 trillion won at the end of July to 1.8362 trillion won at the end of August, marking an increase of about 7%. However, it has again fallen by 609 billion won, or 3.3%, this month, reversing the upward trend within just a month.
Gold banking allows customers to buy and sell gold through their accounts. When customers deposit in won, the amount is converted into gold weight based on international gold prices and the won-dollar exchange rate. Currently, KB Kookmin, Shinhan, and Woori banks offer related products.
However, it is difficult to interpret the entire decrease in gold banking balances as a result of investors selling their gold. The balance reflects the valuation of the gold weight held by customers converted into won. Even if customers do not sell their gold, a decline in international gold prices or the won-dollar exchange rate can lead to a decrease in the won-based balance.
In fact, gold prices have significantly dropped from their peak earlier this year. According to the Korea Exchange, the KRX gold spot price closed at 193,370 won per gram on September 21. This represents a 28.3% decrease compared to the annual high of 269,780 won recorded on January 29.
Along with the decrease in valuation, the actual amount of gold held by customers has also declined. At Bank A, the number of gold banking accounts increased by 2.2% from January to September 18, but the weight of gold held decreased by 7.4%. During the same period, the won-based balance dropped by 26.7%. This suggests that rather than a large number of account closures, the amount of gold held per customer has decreased, compounded by valuation reductions due to fluctuations in gold prices and exchange rates.
Demand for physical gold has also slowed. Sales of gold bars at Bank A fell from 58 billion won in January to 21.3 billion won in August, a decrease of 63.3%. This contrasts sharply with the earlier surge in gold prices that led to a shortage of gold bars. However, it is important to note that this figure represents only one bank's sales, and it cannot be generalized to the entire banking sector's demand for gold bars.
Rising interest rates in the United States are also putting pressure on gold investment. The U.S. Federal Reserve recently raised its benchmark interest rate by 0.25 percentage points to a range of 3.75% to 4.00%, leaving the door open for further increases this year.
Gold does not generate interest or dividends. As interest rates rise, the appeal of assets that pay interest, such as bonds and deposits, increases, which can weaken demand for gold investments. However, domestic gold prices are determined by both international gold prices and the won-dollar exchange rate, meaning that price adjustments can vary based on exchange rate movements.
Jo Dong-geun, an emeritus professor of economics at Myongji University, stated, "During periods of rising interest rates, the investment appeal of gold may diminish compared to interest-bearing assets like bonds or deposits. Given the sharp rise in gold prices earlier this year, the recent trend can be viewed as a correction process that partially reverses those gains."
He added, "As investors who have experienced price corrections become more cautious, it is likely that domestic demand for gold investment will remain subdued for the time being."
* This article has been translated by AI.
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