As investments in domestic physical gold exchange-traded funds (ETFs) show signs of overheating, the asset managers that launched the ETFs are drawing criticism for issuing investor warnings while simultaneously running promotions. As gold prices have jumped and demand has surged, widening the so-called "kimchi premium," in which domestic gold prices are higher than international prices, the firms have posted investor caution notices for ETFs that track domestic gold prices while also offering gifts to those who buy the related ETFs. Critics say the asset managers are adding to investor confusion.
Korea Investment Management has been running a new purchase event for physical gold ETFs under the name "Find your lucky gold" since the 1st. If investors buy 10 or more shares of its ETF by the end of this month, the company will award "gold items" through a drawing.
Mirae Asset Global Investments is also advertising that it will give away a pure gold one-don ring by lottery when investors purchase 10 or more shares of its market-leading ETFs, including its physical gold product. The event runs from the 24th of last month through the 31st of this month.
There are two ETFs that invest in domestic physical gold: KIM's "ACE KRX Gold Spot" and Mirae Asset's "TIGER KRX Gold Spot," which was launched in June. Both track the "KRX Gold Spot Index" as their underlying index.
Fueled by rising gold prices, the two ETFs surged 52% over the past three months (July 16 to Oct. 15). During this period, individual investors bought 414 billion won and 322.2 billion won worth, respectively, ranking third and sixth in net purchases by individuals.
Thanks to the kimchi premium, those who invested in the ETFs have seen considerable gains, but if the premium deflates, investor losses are expected. The larger the kimchi premium becomes, the greater the risk of a short-term price correction. In fact, when the premium suddenly collapsed in February this year, the price of ACE KRX Gold Spot plunged 16% over nine trading days.
As of the 15th, the divergence between prices on the KRX gold market and international gold prices was 18.56%, about twice the level on the 1st of this month (9.81%).
As investment risks grew, the two asset managers that launched the ETFs issued investor cautions. KIM has been posting daily investor caution notices since Oct. 1. Mirae Asset also posted investor caution notices starting the same day. They emphasized that although domestic gold prices move based on international gold prices, they also fluctuate due to factors such as the dollar exchange rate and domestic supply and demand, urging caution when investing.
However, the widening divergence is only communicated through disclosures or notices that investors must seek out themselves. Compared with promoting events via website pop-ups and press releases, this is relatively passive.
The investment industry is expressing concern about the excessive enthusiasm for gold. The Korea Exchange initially planned to hold a giveaway event from the 20th to the 31st, offering gold bars and other prizes to investors who opened new physical gold accounts and met transaction performance criteria. NH Investment & Securities, Samsung Securities, and Kiwoom Securities were set to participate.
But the exchange recently decided to put the event on hold. It issued investor caution guidance about rising gold prices on the 26th of last month and the 1st of this month, and determined that proceeding with marketing at this time would be inappropriate. The exchange reportedly has no plans yet to resume the event.
KIM and Mirae Asset plan to keep the ongoing events on schedule. The asset managers said, "Because the schedule and participation methods had already been announced and the events were underway, existing participants and investors who were planning to join could be harmed."
However, KIM said it will refrain from advertisements or notices that encourage participation in the events for the time being.