Strategists: Gold rush not over yet

In the midst of great economic uncertainty following the 2008 financial crisis, hedge funds and investors sought refuge from inflation and tumbling equity markets by piling cash into gold, bringing the commodity to values not seen since the late 1970s and early 1980s.

But when the European debt crisis shook markets again last September, gold prices plunged as well.

While the fall in gold suggested a potential end to the recent gold rush, some investment strategists are saying the wealthy have begun to take advantage of relatively low prices.

Gold dropped 13.8 percent from a nominal record high of $1,920 per ounce in September 2011 to $1,650 on Friday.

Strong economic data from the United States and lessening expectations of a third round of quantitative easing have made equities a more appealing option.

But a head of a branch of Shinhan Bank in southern Seoul, surnamed Moon, said current low prices represent a bargain rather than a presage of continued drops in prices.

“Very wealthy investors have again become interested in investing in gold bars since the price plunged sharply,” Moon said.

Steve Brice, chief investment strategist at Standard Chartered Bank, also said that now is a good time to invest in gold bars. He said prices are expected to rise again this year to over $2,000.

Investment strategists said gold bars are an increasingly an appealing option for wealthy investors because of the 10 percent value-added tax in addition to no capital gains taxes when selling.

This will allow investors to avoid financial comprehensive taxes and progressive income taxes, which are set to be introduced this year.

The National Tax Service does not inquire as to the origin of assets if they have been inherited for over 10 years, promoting long-term investments in the metal.

Gold’s high liquidity is another characteristic that has lured investors and kept strategists optimistic of a continued rise in prices.

Gold bars are now traded at 69 million won ($61,200) including the value-added tax per kilogram.

If someone buys one kilogram of gold, the minimum investment is smaller than investing in private funds.

“Gold bars suit wealthy investors who have 5 billion won in financial assets,” Moon said.

“This is because it takes a long time to recoup their investment.”

By Ahn Hai-ri [jbiz91@joongang.co.kr]