KRX Gold Market Bogged Down by High Fees, Low Liquidity After 10 Years
The Korea Exchange's (KRX) gold market, established a decade ago as a central hub for domestic gold trading, is failing to meet expectations due to persistent problems like high fees, low liquidity, and an unfair value-added tax (VAT) policy.
These issues discourage investor participation and hinder market growth.
Exorbitant Fees Burden Investors
Gold sellers in the KRX market face a delayed 10% VAT refund, straining their cash flow and making it difficult to manage funds. This discourages participation from gold spot dealers.
KRX's gold exchange fee is significantly higher than major competitors. It's 4.6 times more expensive than LBMA's brokerage fee, and even including securities company fees, individual investors pay 123 times more than NYMEX.
"High fees erode investment returns and deter participants, stalling market revitalization," said Yoo Dong-su, president of the Korea Gold Association. He urged a fee reduction to enhance competitiveness.
Liquidity Woes Hamper Trading
The KRX market's gold trading volume is dwarfed by global exchanges. Last year, it traded merely 13.8 tons compared to giants like LBMA (7,400 tons) and COMEX (5,670 tons).
This lack of liquidity makes it challenging for investors to find buyers or sellers at their desired price quickly. The introduced "market liquidity provider system" relies on financial firms with limited spot market expertise, offering minimal improvement.
Furthermore, the system favors securities companies over spot traders who could provide more liquidity but face restrictions and discriminatory fee structures.
Deceptive VAT Policy Creates Confusion
The KRX market promotes gold as VAT-exempt, which is misleading. While the VAT isn't applied during the sale, it must be paid upon physical withdrawal of the gold, with no immediate refund. This creates the false impression of cheaper gold prices.
This structure benefits traditional gold shops that include VAT in their prices, putting them at an unfair advantage and hindering market transparency.
Revitalization Through Reform
Experts propose a multi-pronged approach to revive the KRX gold market.
Fee Reduction: Lowering fees to international standards is crucial to attract investors and enhance competitiveness.
Improved VAT System: Exploring ways to trade with VAT including easy refunds or automatic VAT returns upon resale without withdrawal could boost market transparency and benefit investors.
Membership Revamp: Restructuring membership to actively include spot dealers alongside securities firms would increase market size and liquidity.
By addressing these issues, the KRX gold market can unlock its full potential and become a thriving hub for domestic gold trading.
Foreign Affairs Journal Senior Reporter Jerry Ahn
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