Gold bugs return to play

Korea’s gold trading volume in July surged to the highest level this year, pushed by the plunge in global gold prices and the strong U.S. dollar against the Korean won, the nation’s main bourse operator Korea Exchange said Monday.

The revival in Korea’s gold market came as gold prices have gradually dropped to 41,450 won ($35.50) per gram, from 45,350 won per gram on Feb. 2 when the prices reached their peak this year.

The average daily volume of gold traded through the Korea Exchange stood at 9.984 kilograms (321 troy ounces) in July, rising 29 percent from the average in the first half this year.

The number of gold future contracts traded in July per day also rose to 220, rising 220 percent from 69 in the first half this year.

“With the falling gold prices, the gold futures are also skyrocketing in trading volume,” said a KRX report Monday. “The number of contracts for gold futures traded on July 28 reached 1,158, far higher than the average daily volume.”

“The recent hike in gold trading is mainly because of the plummeting gold prices and increasing volatility in the gold market, and this trend is expected to continue for a while,” the report said. “In the gold futures market, some firms running businesses related to gold also increasingly participated in the gold trading to hedge a price-fluctuation.”

As of Monday at 7 p.m., Korean time, global gold prices were near $1,095.

Industry observers say the increase in gold trading was driven by the influx of individual investors.

Woori Bank said on July 30 that the bank’s balance of its “gold banking account,” a specialized account in which investors can buy gold without transferring physical gold bars, rose to 21 billion won in total as of July 24, from 14.5 billion won in January.

The sales of physical gold bars also rose at the KB Kookmin Bank. The bank said the sales of gold bars surged 93 percent in June at $5.8 billion, from $3 billion in May.

Several local securities companies in Seoul also released financial products related to gold.

However, at the same time, the plunge in gold prices also made losses for investors who previously bought funds related to gold market.

According to the FnGuide, a financial information provider, 10 fund products in which at least 1 billion won of money was invested on the gold market each suffered 11.6 percent in losses this year. Over the past three years, the 10 funds made 39.33 percent of losses.

Several analysts, however, anticipate that gold prices would further plunge in the future.

Louise Yamada, managing director of Louise Yamada Technical Advisors, said in an interview with CNBC on July 30 that the global gold prices could sink to $800 per ounce.

BY KIM HEE-JIN [kim.heejin@joongang.co.kr]