As the so-called "gold premium" phenomenon appears, where the price of gold in Korea is higher than international gold prices, analysis suggests that there is also a bubble in gold exchange-traded funds (ETFs). Gold futures ETFs track international gold prices, so these concerns do not apply; however, the issue lies with gold spot ETFs. Gold spots are products containing actual gold, based on domestic gold prices. Currently, the only listed gold spot ETF product is the 'ACE KRX Gold Spot' managed by Korea Investment Trust Management.
According to the financial investment industry on the 18th, the Standard & Poor's (S&P) Gold Index, consisting of the most recent futures listed on the New York Mercantile Exchange, rose 4.53% (1615.63 to 1688.81 points) over the past month. During the same period, the KRX Gold Spot Index, which reflects domestic gold prices, surged 22.69% (3023.28 points to 3704.98 points).
Following virtual assets, gold has also significantly exceeded overseas prices domestically. After Donald Trump was inaugurated as President of the United States, demand for gold, a representative safe asset, surged due to the possibility of a trade war. The Korea Mint Corporation fueled this demand by announcing a temporary halt in the supply of gold bars to banks on the 11th. As a result, individual investors rushed to hoard gold, with gold bar sales reaching 10.8 billion won on just the 13th of this month, compared to around 100 million to 200 million won sold daily around the same time last year.
As domestic and international gold prices diverged, the revenue of gold ETFs also varied. Riding the gold premium, the ACE KRX Gold Spot rose 10.84% over the past week. Looking further back, it generated revenues of 23.82% over one month, 36.45% over three months, and 47.12% over six months.
Conversely, the KODEX Gold Futures (H) and TIGER Gold Futures (H), which track international gold prices, only rose 0.5% over the week. Over one month, they rose about 4%, about 11% over three months, and about 15% over six months. Despite being in the same gold ETF category, the six-month revenue discrepancy exceeded threefold.
Additionally, with investment demand pouring into the ACE KRX Gold Spot ETF itself, a phenomenon has emerged where the ETF price rises more than the value of the underlying asset, gold. The KRX Gold Spot Index, the underlying index, is also overvalued due to the gold premium, and the ETF price rising even more represents a 'double bubble.' As of the previous day, the net worth of one ACE KRX Gold Spot unit was 22,237.15 won, while the market price closed at 22,550 won, 1.40% higher.
Market participants are concerned that when the gold premium disappears, the price of the ACE KRX Gold Spot ETF will drop more sharply. Hwang Byeong-jin, a researcher at NH Investment & Securities, noted, "As long as the accommodative monetary policy led by the U.S. Federal Reserve does not transition to tightening, the bullish cycle of international gold prices remains valid," and advised that until excessive premiums over the theoretical value of the KRX Gold Spot are resolved, gold investment should favor gold futures ETFs.
Korea Investment Trust Management, which designed the ETF, explained, "The net worth of the ACE KRX Gold Spot ETF includes a divergence from international gold prices occurring in the underlying asset market, and if the divergence rate eases, it could serve as a shock factor for the ETF in the short term."
However, recent analysis indicates that other factors beyond the gold premium have also influenced the sharp rise in ACE KRX gold spot prices. The first is the exchange rate. The recent rise in the won-dollar exchange rate, along with the absence of currency hedge costs, contributed to the high revenues of gold spot ETFs. While gold spot ETFs are open currency products, gold futures ETFs are designed to hedge (risk-averse) against price fluctuations due to exchange rate changes.
The second factor is the difference inherent in physical versus futures contracts. While physical contracts involve holding gold, futures contracts consist of agreements to trade at a predetermined price at a future specific date. Futures contracts extend their terms continuously by rolling over to the next contract before they mature.
It is noteworthy that due to storage costs, the price of near-term contracts is usually higher than that of far-term contracts. If this 'contango' situation persists, the value of gold futures ETFs will gradually decline due to rollover. This has resulted in a prolonged environment where the revenue of gold spot products remains high.