As the "kimchi premium" (a phenomenon in which domestic prices are higher than international prices) widened amid a recent surge in domestic gold prices, the Korea Exchange (KRX) warned of overheated investing while at the same time commissioning the production of a gold market promotional video during the same period. There is criticism that it is inconsistent to send cautionary messages externally while internally pushing marketing to boost trading activity.
According to the financial investment industry on the 11th, the Korea Exchange (KRX) said on the 14th of last month that it would fully postpone a gold transaction event it had been preparing with securities firms. The exchange told participating securities firms that "with gold prices surging and market sentiment weak, it is burdensome to carry out marketing," temporarily putting the event on hold and canceling the distribution of press releases. At the time, demand for gold jumped and the "kimchi premium" emerged, raising concerns about investor losses.
The event, titled "Record the largest trading volume on the KRX Gold Market! Grab a gold bar," was to be conducted jointly by the exchange with NH Investment & Securities, Samsung Securities, and Kiwoom Securities. It offered prizes such as gold bars to investors who newly opened a spot gold trading account or achieved certain transaction performance.
The issue is that on the very day the event was canceled, the exchange ordered a service for producing a "KRX Gold Market promotional video." It promotes the KRX Gold Market operated by the exchange as a key domestic investment destination by highlighting its low trading costs and the recent increase in trading volume. The project budget is about 42 million won, and it is reportedly in the final stage of negotiations with the contractor.
Earlier, the exchange issued investor cautions twice, in September and Oct., saying, "As the gap between domestic gold prices and international gold prices is widening, caution is needed when investing." It particularly emphasized that domestic gold prices have typically converged with international prices and warned that a price adjustment would be inevitable if the "kimchi premium" were to unwind.
Some say the exchange fueled investor fervor by spending a promotional budget internally while outwardly calling for caution amid a gold investing craze. A financial investment industry official said, "It is inconsistent that the exchange halted an event citing overheating while simultaneously commissioning a promotional video," adding, "Rather than market management, the focus seems to be on boosting trading activity."
At the time, the divergence between the KRX Gold Market's domestic gold price and the international gold price exceeded 10% at the end of Sept., and during intraday trading in Oct. it even topped 20%. This means gold traded in the domestic gold market at prices more than 20% higher than international prices. The divergence is now reduced to within 1%, and as the gap narrowed, the "ACE Gold Spot" ETF, which tracks domestic gold prices, fell more than 11% in three trading days at the end of Oct.
The KRX Gold Market is a distribution market the Korea Exchange (KRX) set up to allow buying and selling physical gold like stocks. For spot gold transactions, the exchange receives trading and clearing settlement fees from securities firms (members). The structure is such that the exchange's fee revenue increases as trading volume and trading value grow.
An exchange official said, "The purpose was not to promote the KRX Gold Market externally, but to update an old internal-use promotional video, so we proceeded to commission the production."
Meanwhile, Korea Investment Management and Mirae Asset Global Investments drew public ire last month by running a buy event for gold spot exchange-traded funds (ETFs) carrying a "kimchi premium." Even as they issued investment cautions for related ETFs amid overheated gold investing, they heightened investor confusion by promoting purchases of gold-related products with giveaways.