The premium on South Korean gold prices has rapidly declined. (Image courtesy of Yonhap)
SEOUL, March 5 (Korea Bizwire) — The premium on South Korean gold prices, which had been trading more than 20% above international rates, has rapidly declined, leading to heightened market volatility. At one point, domestic gold prices dropped at 15 times the rate of global gold prices, triggering increased investor caution.
According to the Korea Exchange (KRX) on March 4, 1 gram of spot gold on the KRX Gold Market closed at 142,740 won, up 2.66% from the previous trading session. However, this price remains 5.18% higher than international gold prices, which stood at 135,710 won per gram.
The shift follows a steep selloff last week when investors, spooked by the excessive premium, cashed in their holdings. On February 28, South Korea’s gold price plunged 14.98% from its peak on February 14, falling to 139,030 won per gram from 163,530 won. During the same period, global spot gold declined by only 0.95%, from 130,613 won per gram to 134,830 won.
The sharp correction came as traders moved capital into gold futures and other investment vehicles that had a lower price gap with global markets. As a result, the domestic-international price divergence narrowed to 3.11% on February 28, down significantly from the previous 20% gap.
However, analysts warn that the premium could fluctuate again, as South Korea’s gold market still faces supply constraints. “The recent narrowing of the price gap doesn’t mean the gold supply shortage is fully resolved,” said Hwang Byung-jin, an analyst at NH Investment & Securities. “With speculative investment inflows, the divergence is widening again.”
Market Volatility and Currency Risk
Experts anticipate continued volatility in domestic gold prices, particularly with the Korean won-dollar exchange rate hovering around 1,460 won per dollar. The potential for additional currency-driven gains has weakened, reducing the appeal of domestic gold as a hedge.
“If the exchange rate continues to rise, there could be an opportunity to benefit from currency appreciation alongside gold price increases,” said Hwang. “However, there’s little expectation of a sharp surge in the won-dollar exchange rate, meaning investors in domestic gold should carefully assess exchange rate trends before making decisions.”
With South Korea’s gold price premium still fluctuating, analysts caution that investors should be mindful of market volatility and international price trends when making investment choices.
M. H. Lee (mhlee@koreabizwire.com)
