Actual Transaction Prices Vary with Taxes and Processing Fees
Gold Prices Must Rise Over 20% to Realize Profits
On January 21, Yonhap News reported that posts on online communities and Naver Cafes are increasing, with users saying, "The news says gold prices have risen, but when I actually try to sell, the price is completely different," and "I calculated the price based on the internet rate, but the actual purchase price is much lower." The report highlighted the gap between perceived and actual gold prices when buying or selling.
As gold prices soar, causing a shortage of gold bars, a customer is seen inquiring about purchasing gold bars at the Korea Gold Exchange Jongno Main Branch in Jongno-gu, Seoul. Photo by Kang Jin-hyung
The main reason consumers are confused about gold prices is that the price structures applied when buying and selling gold are different. Recently, the price gap between buying and selling one don (3.75g) of pure gold has widened to over 160,000 won. The gold prices that consumers check on portal sites or in the news are usually based on international gold prices converted to Korean won, or the reference prices set by domestic gold exchanges.
Internet Gold Prices Are 'Reference Prices'...Vary with Exchange Rates
Since international gold prices are traded in US dollars, the domestic price in Korean won fluctuates according to exchange rate changes. Even on the same day, if the exchange rate rises or falls, the domestic gold price will also fluctuate. Industry insiders explain that domestic gold prices are not absolute, but are closer to reference values. Because each seller has different cost structures and distribution expenses, actual transaction prices inevitably vary.
During periods of rapid gold price increases like recently, the purchase price may decrease as many people rush to sell gold. Photo by Kang Jin-hyung
The biggest misunderstanding in gold trading is that the buying and selling prices for the same gold can be drastically different. As of mid-January, according to major gold exchanges, the price to buy one don of 24K pure gold is about 960,000 to 970,000 won, but the selling price is in the low 800,000 won range. Even for the same gold, there is a difference of more than 160,000 won between the buying and selling prices.
This difference is not due to arbitrary pricing by gold shops, but rather structural costs. When purchasing gold, a 10% value-added tax (VAT) is added to the market price. In addition, processing fees for making gold bars, labor costs, transportation, and distribution margins are included. On the other hand, when selling gold, only the gold price without VAT is applied, and processing costs cannot be recovered. As a result, the purchase price is significantly lower than the selling price. Industry sources explain that, on average, about 15% in additional costs is added to the purchase price.
Even Pure Gold Prices Differ by Purity
During periods of rapid gold price increases like recently, many people rush to sell gold, which can further lower the purchase price. An employee at a gold shop in Seoul's Jongno jewelry district said, "As gold prices rise, more people try to realize profits by selling gold," and added, "According to the principles of supply and demand, the purchase price is often set somewhat lower than the spot price."
Even for 24K pure gold, the transaction price varies depending on purity. Most gold bars have a purity of 99.99% (four nines), while gold rings or souvenirs are often 99.9% or 99.5%. Gold with lower purity incurs additional refining costs, which lowers the selling price. An industry insider explained, "Four nines, three nines (99.9%), and 99.5% all have different prices applied."
Even with the same 24K pure gold, the trading price varies depending on the purity. Most gold bars have a purity of 99.99% (four nines), while gold rings or souvenirs often have purities of 99.9% or 99.5%. Gold with lower purity incurs costs during the refining process, which lowers its selling price. Photo by Kang Jin-hyung
Given this structure, industry experts commonly explain that, when investing in physical gold, the gold price must rise by at least 20% above the purchase price to expect an actual profit. Experts advise that, when investing in physical gold, it is more advantageous to choose gold bars rather than jewelry, since rings or necklaces have high processing costs that are not recognized upon resale. They also recommend purchasing certified products from reputable institutions such as Korea Minting, Security Printing & ID Card Operating Corporation, Korea Gold Exchange, or Samsung Gold Exchange, or products with the Taeguk mark or hallmark, as these are more favorable for resale.
Meanwhile, there are also ways to invest in gold through financial products such as gold savings accounts or gold ETFs instead of physical gold. In these cases, the same reference price is applied for both buying and selling, making transactions more convenient. However, as these are financial products, the principal is not guaranteed, and taxes are imposed on capital gains. An industry expert stated, "Although gold prices have surged recently, gold is not an asset for short-term profit," and advised, "It is better to approach gold as a hedge against inflation from a long-term perspective of at least ten years."
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