FOMO-driven gold rush ups kimchi premium on gold price to highest
Fri Feb 14 2025
As South Korean retail investors have joined the global gold rush in ‘fear of missing out’, or FOMO, the country’s gold price has shot up faster than the international gold price, widening its gap with the price of gold traded in London to its biggest-ever 20%.
According to Korea Exchange (KRX) and 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 was 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 into the Korean currency by KRX.
Located in London, LBMA is the international trade association for the global over-the-counter bullion market for precious metals, setting a standard for the global wholesale market for noble metals.
Gold was traded about 0.46% higher in the Korean market than in international markets on daily average since the launch of the KRX gold market in 2014 until January.
But Korean investors driven by FOMO 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 kimchi premium term was first used to describe the big gap in cryptocurrency prices in Korean exchanges compared to other exchanges located globally. Especially, 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 gold price 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, the high demand for gold led Korean banks to temporarily suspend gold bar sales upon the state-run Korea Minting, Security Printing and ID Card Operating Corp.’s request, citing a gold bar shortage in the country.
Since gold bar purchases were blocked, Korean investors have flocked to the silver market, causing a silver bar supply shortage and leading to a temporary halt to silver bar sales in the country on Friday. POSSIBLE BURST IN A GOLD PRICE BUBBLE
The excessive 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 the typical assets 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.
Under the law, market equilibrium forces would align the prices of the asset over time.
Source: https://www.kedglobal.com/