Korea Exchange (KRX) has proposed that three gold refineries that have recently entered Korea's wholesale market move into on-exchange transactions (the KRX gold market), according to confirmations. KRX previously revised its rules to allow foreign corporations to supply physical gold directly to the KRX gold market in order to close the gap between domestic and overseas gold prices. As a follow-up, KRX is directly searching for overseas refineries to participate in on-exchange transactions.
On the 14th, according to the financial industry, KRX recently proposed on-exchange transaction entry to three overseas refineries—Tanaka (Japan), Heraeus (Germany) and Asahi (Japan)—that conduct over-the-counter transactions in Korea's gold wholesale market. Over-the-counter transactions refer to trading gold through private distribution networks, including jewelry shops, while on-exchange transactions refer to trading on the KRX gold market. Wholesale over-the-counter transactions involve supplying industrial gold to corporations.
In Mar., KRX revised its operating rules and detailed regulations to allow foreign corporations to supply physical gold to the KRX gold market. Through this revision, Article 13 (Membership qualifications) of the KRX Gold Market Operating Rules added "foreign corporations that produce good delivery gold recognized by the London Bullion Market Association (LBMA)." All three—Tanaka, Heraeus and Asahi—are refineries recognized by the LBMA.
Korea Exchange (KRX) is seeking to align domestic gold prices with international quotes by increasing supply. Last year, as demand for gold investment rose, the KRX gold market at times transacted at prices up to 20% higher than international gold prices. Currently, domestic gold prices are lower than international quotes.
A few distributors dominate the domestic gold market. The industry sees Korea Gold Exchange and LS MnM as accounting for most of the market. KRX believes that if overseas gold refineries participate in on-exchange transactions, the gap between domestic and overseas gold prices could narrow. That is because domestic gold prices are influenced by the real-time price indicator of the KRX gold market.
However, the three overseas refineries are reportedly lukewarm about entering on-exchange transactions. To transact on the KRX gold market, gold must be stored at the Korea Securities Depository (KSD), and then undergo quality certification and inspection at the Korea Minting, Security Printing & ID Card Operating Corporation (KOMSCO). The refineries cite delays in gold distribution due to this series of steps.
Whether other overseas refineries will join the KRX gold market is also uncertain. MKS PAMP, a large Swiss gold refiner seeking to enter Korea's gold market, has decided not to participate in the domestic retail market and to stay out of the over-the-counter market, including wholesale, for two years. This is because the domestic small jewelry sector, led by the Korea Federation of Jewelry Industry Associations, argues that market entry by overseas refineries could damage their existing business base.
With over-the-counter transactions restricted, Swiss refiner Valcambi, which had been considering entering Korea's gold market, is also delaying its decision. A KRX official said, "We expect the domestic gold market to gradually expand, and based on that, we plan to persuade overseas refineries to participate," adding, "If overseas refineries enter, we believe the gap between domestic and overseas gold prices will narrow."