Official gold market to open in South Korea


By Cho Ki-won
The Hankyoreh, Seoul
Friday, March 21, 2014

On Mar. 19, two gold bars were brought to Ilsan in Gyeonggi Province and deposited in the safe of the Korea Securities Depository, an organization that stores gold for the gold market. For the gold market to open, there needs to be actual gold to be bought and sold, and this was the first gold bullion to arrive at the safe.

The gold bars, which have a purity of 99.99%, weighed 1 kilogram each, and a security label was attached to the bottom bearing the mark of the Korean Mint. The bars had been produced by a Korean metal refinery.

"One importer has asked us to store 15 gold bars. Once they are certified by the Mint, those bars will be placed here as well," said Seong Bo-kyung, head of the gold storage payment team for the depository.

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The depository announced that, once the gold commodities market takes off, it is expecting to handle an average of 4-7 tons, or 4,000-7,000 gold bars, each day.

The public is now able to trade in gold on the market, just as they can with stocks. This is made possible by the KRX gold market, which will open on Mar. 24. The market enables ordinary investors to buy and sell gold through accounts with securities companies or futures trading companies.

The idea behind setting up a gold market is to make sales of the precious metal more transparent by having them take place at an official exchange. In the past, transactions in gold took place off the exchange and were not recorded, making them a popular method of tax evasion. The opening of the gold exchange is connected with the current administration’s policy of bringing the underground economy into the light.

"With rings and other kinds of jewelry, we are trying to create added value in terms of product competitiveness, and for trading in gold as an investment, we want transactions to be made transparently on the exchange," said Gong Do-hyun, head of the gold market team at the Korea Exchange.

The method of trading in gold was designed to be similar to the stock market. Trades can be made between 10 a.m. and 3 p.m., starting one hour after the stock market opens. "We decided to start trading an hour after the stock market to match the working hours of people in the jewelry industry," Gong explained.

The method chosen for making contracts is single-price sales, taking place between 9 a.m. (when bidding begins) and 10 a.m. and from 2:30 p.m. to 3 p.m. This kind of trading means that transactions are not made each time an order comes in but rather that orders are pooled for a set amount of time and then sales are made at a certain time for a single price.

Outside of these times, deals can also be made through the continuous trading method, which involves individual competition and multiple prices.

Just as with the stock market, information about the prices and volume on the gold commodity market will be made available in real time, while fluctuations in prices will be limited to a 10 percent change from the previous day.

For one year investors will not be charged any fees to use the exchange.

"Once the gold market gets going, we expect that the practice of dodging the value-added tax through illicit sales will disappear, which will lead to around 300 billion won in tax revenue," the depository said. "The market will also guarantee a swift and reliable supply of gold as a raw material, contributing to the development of the South Korean jewelry market."

Some concerned analysts point out that, even after the establishment of the gold market, there is no telling whether individuals and jewelers who have been relying on paperless transactions in gold and not paying taxes will enter the market, as this would mean exposing their transactions to the government. The Korea Exchange believes that about a year will be required for the gold commodity market to become fully active.

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