[Interview] "Even if gold prices rise, the fragile industrial structure persists... The issue of 'eumseong georae' must be resolved"

Kim Jong-in, President of Korea Gold Exchange
High Circulation of Gold with Low Pure Gold Content
Decades-Old Practices Must Change for Industry Growth
Korea Gold Committee Launched to Pursue 'System Improvement' Efforts

"If the pervasive issue of underground trading in the Korean gold market is not resolved, the domestic gold industry is highly likely to be relegated to a subordinate market under global brands."

From the left, Park Seong-wook, CEO of Korea Gold Exchange Digital Asset; Kim Jong-in, General President of Korea Gold Exchange; Song Jong-gil, CEO of Korea Gold Exchange

This is a stern warning from Kim Jong-in, the General Manager of Korea Gold Exchange. Korea Gold Exchange is the largest gold and precious metals trading company in the country, supplying all gold bars to the four major commercial banks. After being acquired by the ITCEN Group in 2018, it has grown rapidly, and recently its export volume has surged. With gold prices soaring to unprecedented heights, the company continues to achieve record-breaking performance. While this is a cause for celebration, General Manager Kim is not entirely pleased. He is deeply concerned that unless the decades-long practice of underground trading in the domestic gold market changes, the industry will find it fundamentally difficult to grow.

Together with Kim Jong-in, Song Jong-gil, CEO of Korea Gold Exchange, and Park Sung-wook, CEO of Korea Gold Exchange Digital Asset, have rolled up their sleeves to promote the legalization of the gold market. CEO Song oversees Korea Gold Exchange and its refining subsidiary FTC. CEO Park is responsible for developing the online trading platforms ‘Geumbanggeumbang’ and ‘Sengold’.

CEO Song pointed out that gold products traded in the market, represented by 14K (58.5% pure gold), 18K (75%), and 24K (99.99%), often have a high rate of substandard purity. He explained that jewelry manufacturers pay for labor and other costs in gold to avoid VAT, creating a vicious cycle. "To make a profit from the gold received as payment, they have to produce and resell gold products with substandard purity, and this cycle repeats, causing the purity of gold to continuously decline," he said.

This situation causes several problems in the gold market. First, consumers find it difficult to trust the purity of gold products when trading. Distrust persists between sellers and consumers. Also, since labor costs are paid in underground gold payments, manufacturers do not recognize these as sales and tend to underreport. Workers in small businesses who avoid sales recognition face difficulties enrolling in the four major social insurances. This is a dark side of the underground gold trading market caused by VAT.

CEO Song criticized, "Although domestic artisans have sufficient competitiveness compared to overseas luxury brands like Cartier and Bulgari, Korea’s jewelry industry continues to operate in a structure that cannot escape its small-scale nature."

Korea Gold Exchange is addressing this issue by collecting substandard purity gold circulating in the market. When customers bring in low-purity gold, it is melted down and reprocessed into ‘Ponine’ gold (meaning 9 with 4 nines, i.e., 99.99% pure gold) and exchanged. This is a self-help measure to enable consumers to trade gold with confidence.

The refining business is showing results. The average monthly refining volume last year was about 89kg, but it increased to 162kg in February this year and exceeded 200kg in August, continuing to rise. By supplying high-purity refined gold, the company aims to establish a virtuous cycle of resources and reduce substandard gold, expanding its role. CEO Song self-assessed, "The Gold Exchange is contributing to improving substandard gold from the underground market and establishing a virtuous resource cycle."

Korea Gold Exchange Gold Bar Photo by Jinhyung Kang aymsdream@

CEO Park Sung-wook emphasized the importance of online trading. He argued that activating online trading can significantly curb underground trading. This is because the offline market, where price-setting authority lies with sellers, creates an underground market.

CEO Park explained, "Gold resold by consumers (old gold) is mainly used as payment gold within the gold market," adding, "About 22 tons annually, worth approximately 2.7 trillion KRW, flows into the resale market and becomes a source of underground trading." He said, "Online trading gives price-setting authority to consumers, and the platform converts substandard gold into Ponine gold and offers prices accordingly. The more online trading increases, the more underground trading decreases."

In July this year, the Korea Gold Council was launched, involving major precious metals businesses, academia, and research institutes, to jointly consider measures to foster the precious metals industry. On Hyun-sung, Chairman of the Korea Gold Council, said, "We are making various efforts to reduce underground trading, but without fundamental institutional reforms, these practices are unlikely to disappear easily." He added, "We will strive to achieve results in institutional reforms, including the VAT issue, which is identified as the root cause of underground trading problems."