Domestic gold price, concerns over widening short-term volatility

Kimchi premium, will eventually narrow

International gold prices likely to continue rising

The "kimchi premium" phenomenon, where domestic gold prices are higher than international prices, is worsening. There are warnings that short-term price volatility could increase.

On the 17th, according to the Korea Exchange, the KRX gold spot closed up 1.83% at 222,000 won per g. However, when converting New York Mercantile Exchange prices into won, it is about 199,280 won per g. This means domestic gold prices are 11.4% more expensive than the global market.

According to Financial Supervisory Service statistics, over the past five years there were only two instances—last February and this month—when domestic gold prices were more than 10% higher than international prices. Because gold holds a value that is accepted worldwide, it is rare for the divergence rate to become this large. Analysts say domestic gold prices surged abnormally as domestic demand for gold investment exploded recently.

The consensus in the investment industry is that domestic gold price volatility has increased. The rise was steeper than international prices, and the logic is that the price gap will narrow according to the one-price principle (one product, one price). The divergence, which widened to 22.6% in February, narrowed to 0.7% in one month. At that time, the returns of exchange-traded funds (ETFs) tracking domestic physical gold also fell sharply.

However, experts expect international gold prices to continue rising. This is because safe-haven demand is spreading due to U.S.-China disputes. Jane Bauda, a MarketPulse researcher, said, "Trade disputes and additional U.S. interest rate cuts will determine the direction," adding, "If the U.S.-China dispute expands, it could exceed $5,000 per troy ounce."

Reporter Seon Han-gyeol always@hankyung.com