'Kimchi Premium' Spreads to Gold Market
Record-High Divergence Between Domestic and International Gold Prices
The market price of the 'KRX Gold Market,' a gold spot market operated by the Korea Exchange, has been higher than the international gold price for nearly two weeks, and at one point, the domestic gold price was 24% more expensive than the international gold price.
According to the financial investment industry on the 15th, around 1 p.m. the previous day, 1g of 1kg gold spot (Gold 99.99_1kg) was traded at 168,200 KRW on the Korea Exchange KRX Gold Market, an increase of about 3.8% compared to the previous trading day. At the same time, the international gold price was around 135,000 KRW per gram, resulting in a divergence rate (price difference) of about 24%. Domestic investors who invested in gold through the KRX Gold Market effectively bought gold at more than 20% higher prices than overseas. By the market close that day, the domestic price slightly decreased, reducing the divergence rate to 20.13%. This is the first time since the establishment of the KRX Gold Market in 2014 that the domestic gold spot price and the international price have diverged by more than 20%.
An employee is organizing gold bars at the Korea Gold Exchange Jongno Main Branch in Jongno-gu, Seoul. Photo by Kang Jin-hyung
The reason for the difference between domestic and international gold prices is similar to the 'Kimchi Premium' that occurs when the price of Bitcoin traded on the Korean won market of digital asset exchanges surges higher than overseas prices. This phenomenon occurred as demand surged rapidly in the domestic market due to growing anxiety over rising gold prices. The Korea Exchange issues market guidance disclosures through securities firms when the gold price divergence rate in the KRX Gold Market exceeds 6%, and such divergence disclosures have been continuous since the 4th of this month.
The 'ACE KRX Gold Spot,' the only domestic gold spot exchange-traded fund (ETF) operated based on the KRX Gold Market, has also maintained a divergence rate of over 1% since the beginning of this month. The ETF divergence rate is an investment risk indicator that shows the ratio of the difference between the ETF market price and the ETF's real-time reference price (net asset value, iNAV). A positive divergence rate means that the ETF market price is overvalued compared to the real-time asset value of the investment assets held by the ETF.
The 'ACE KRX Gold Spot' ETF has issued daily divergence excess disclosures without exception from the 4th of this month to the present, and on the 5th, the divergence rate rose to as high as 2.15%. The ETF manager, Korea Investment Management, explained separately to investors through a notice that "due to the recent increase in domestic gold investment demand, a gap has occurred between the international gold price and the domestic gold price," and "we are doing our best to reduce the difference between the reference price and the actual asset price, but the divergence rate has somewhat expanded due to the increased buying pressure recently."
Gold bars are also experiencing a shortage. The Korea Minting and Security Printing Corporation announced on the 11th that "gold bar sales will be temporarily suspended due to raw material supply issues." Not only gold bars but also silver bars have seen increased demand, and currently, they are unavailable for purchase at the Korea Minting and Security Printing Corporation.
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