On the Way to Buy Gold... Investors Prefer 'KRX Gold' Over 'Gold Banking' and 'Gold Funds'

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[Asia Economy Reporter Lee Seon-ae] Han Jae-hee (38), who has been steadily investing in gold since the word ‘inflation’ began appearing frequently in newspapers this year. He neither buys physical gold at jewelry stores nor uses gold trusts or gold banking at banks; he trades exclusively on the ‘KRX Gold Market.’ Why does Han consistently invest in gold through the KRX Gold Market? Han said, "The most affordable way for individual investors to invest in gold is by trading through the KRX Gold Market," adding, "It allows investment with small amounts, has the lowest fees, and capital gains from trading are tax-exempt, so I think it is the most rational option."

As concerns over a U.S. economic recession and prolonged global inflation increase market volatility, demand for traditional safe-haven assets like gold has surged, leading to an explosive rise in trading volume on the KRX Gold Market. According to the KRX Gold Market on the 22nd, the average daily trading volume in 2020 was 105.6kg, more than double the previous year (a 142.6% increase), and in 2021, the average daily volume rose 8.0% year-on-year to 114.1kg. In the first half of this year, it recorded 111.7kg.

A KRX Gold Market official from the Korea Exchange explained, "As of the 19th, the domestic gold price was 72,360 KRW per gram, which is a 7.7% decrease compared to the year’s highest price (78,360 KRW on March 8), but it is a 4.9% increase compared to the end of last year. Looking at the one-year trend, gold prices are on an upward trajectory."

Gold traded on the KRX Gold Market is influenced by exchange rate fluctuations. As of the 19th, international gold prices slightly declined compared to the end of last year, but due to the recent sustained strength of the U.S. dollar, domestic gold prices rose about 5% during the same period.

The Korea Exchange is the only comprehensive exchange in Korea trading stocks, derivatives, government bonds, etc., and opened the KRX Gold Market in March 2014 with approval from the Financial Services Commission to foster a transparent gold market. The increase in KRX Gold Market trading volume cannot be simply interpreted as a rise in popularity of safe-haven assets recently. Considering the explosive growth in trading volume, it is evaluated that the KRX Gold Market itself has strong competitiveness.

The total trading volume of the KRX Gold Market increased from 10,713.3kg in 2019 to 26,201.0kg in 2020 and 28,295.8kg in 2021. The trading value rose from 591.96 billion KRW in 2019 to 1.80138 trillion KRW in 2020 and 1.88174 trillion KRW in 2021.

There are various ways to invest in gold, including trading on the KRX Gold Market, buying physical gold (jewelry stores), gold banking, and bank gold trusts. Among these, investing in gold through the KRX Gold Market is highly praised among individual investors as the most affordable method. By placing orders online through securities firms’ HTS (Home Trading System), investors can trade with low fees around 0.3%. This is the lowest compared to other investment methods such as 1% fees for bank gold banking. The gold traded is high-quality with 99.99% purity certified by the Korea Minting and Security Printing Corporation and is safely stored at the Korea Securities Depository.

Trading trends and bid information are fully disclosed, allowing investors to trade with confidence. Prices are formed at levels between 100.1% and 100.4% of international gold prices. International gold prices serve as the benchmark for transactions by gold producers and importers, and the KRX Gold Market offers the advantage of trading at these prices.

A KRX Gold Market official emphasized, "The biggest advantage is that capital gains from trading are tax-exempt," adding, "This is a benefit not seen in any other investment method." Capital gains from gold banking and gold ETFs are taxed as dividend income, with 15.4% withheld at source. Since capital gains are tax-exempt, they are naturally not subject to comprehensive financial income taxation.

There are two types of products listed on the KRX Gold Market: 1kg gold bars and 100g gold bars. Investors can choose either when investing in gold. Both 1kg and 100g gold bars have a trading unit of 1g, so investors can invest in gold with small amounts around 60,000 to 70,000 KRW. However, when physically withdrawing gold, it must be done in units of 1kg or 100g depending on the product. A 10% value-added tax is applied when physically withdrawing gold, but this is the same for other investment methods such as gold banking and jewelry stores. The physical withdrawal fee (about 20,000 KRW per item) is also the lowest compared to other investment methods.

A financial investment industry official said, "The KRX Gold Market was created as a result of government policy to enable trading gold at low prices and fees while enjoying tax-exempt benefits," adding, "It is regarded as the most rational market alternative for both investors seeking investment returns and those wanting to hold physical gold, and we expect the trading volume of the KRX Gold Market to increase further this year."

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