FOMO-driven gold rush lifts kimchi premium on gold to highest level

With South Korean retail investors joining the global gold rush in ‘fear of missing out’, or FOMO, the country’s gold price has shot up faster than the international price, widening its gap with the London gold price to its largest-ever 20%.

According to the Korea Exchange (KRX) and the London Bullion Market Association (LBMA), the price gap between gold traded on the KRX gold market and LBMA stood at 19.47%, a historic high, on Friday.

Gold traded at 161,990 won per gram in Korea versus 135,588 won in London, according to the KRX market data system. The LBMA gold price was converted to the Korean currency by KRX.

The London-based LBMA is the international trade association for the global over-the-counter bullion market for precious metals, the standard setter for the global wholesale market for noble metals.  

Gold has traded about 0.46% higher in the Korean market than in international markets, based on the daily average, from the time of the KRX gold market's launch in 2014 until January.

But Korean investors have rushed to gobble up the yellow metal lately, creating a gold shortage in the country and an excessive kimchi premium in the gold market, said analysts.

SUSPENDED SALE OF GOLD AND SILVER

The term 'kimchi premium' was first used to describe the large gap in cryptocurrency prices on Korean exchanges compared with other exchanges globally. In particular, bitcoin trades at higher prices in Korea than in other countries.

The rapid depreciation of the Korean won against the US dollar since late last year has also inflated the price of gold in the Korean currency.

The dollar closed at 1,442.50 won on Friday in Seoul trading versus 1,394.70 on November 29, 2024.

Earlier this week, high gold demand led Korean banks to temporarily suspend gold bar sales at the request of the state-run Korea Minting, Security Printing and ID Card Operating Corp, which cited a gold bar shortage in the country.

With gold bar purchases blocked, Korean investors flocked to the silver market, causing a silver bar supply shortage that led to a temporary halt to silver bar sales in the country on Friday.

POSSIBLE BURST IN GOLD PRICE BUBBLE

The sky-high kimchi premium on the gold price has stoked fears that the gold price bubble would soon burst in Korea, analysts warned.

“Gold and silver are typical assets that are well controlled by the law of one price because they are easily traded around the world,” said Lee Young-hoon, an ETF and commodities analyst at Samsung Securities Co.

“Considering that the (price) gap will eventually narrow, the gold price in Korea would face short-term corrections.”

The law of one price is an economic concept that states the price of an identical asset or commodity will have the same price globally regardless of location.

Based on this concept, market equilibrium forces would align the prices of the asset over time.

Write to See-Eun Lee at see@hankyung.com
Sookyung Seo edited this article.