An ad for Korea Exchange Gold Spot Market. (Photo: KRX)

Gold futures, which have been traded on the Korea Exchange since March 2014, recently hit an all-time high, while transaction volume continues to grow.

The recent global gold frenzy may have started in Korea. The spark was Bank of Korea Gov. Lee Ju-yeol’s comment on possible redenomination in late March.

The Korea Exchange said on July 25 that gold traded at the exchange came to 992.2 billion won so far this year and is sure to mark 1 trillion won by August.

Gold trading averaged 1.26 billion won daily at the exchange, up 43.2 percent on-year and four times higher than the average recorded in March 2014 when the market opened at the exchange.

The average amount of gold traded by volume came to 25 kg per day, up 30 percent on year, and the value of gold traded at the exchange so far this year up to July 25 amounted 176.5 billion won, up around 60 billion won compared to the same period last year, or 52.8 percent on year.

The price of gold has also been rising as its trading increased this year. The price of gold came to 54,130 won per gram on July 25, up 17.75 percent so far this year.

South Korea’s first spot gold exchange was established in 2014 at the behest of the Korean government.

The government’s push for the exchange was out of a desire to target what it perceived as opaque over-the-counter gold transactions in South Korea, which in the government’s view, were not being monitored and most importantly, not being taxed.

In 2013, the Korean Financial Services Commission estimated that 110 tons of gold were traded each year in South Korea, with up to 70 tons, or 63% of this figure, traded via what the Commission described as “illegal transactions.”

Bringing transactions on to an exchange platform would allow more gold transactions to be taxed, and so undermine the economy’s widespread non-declaration of gold transactions.

The Government pitched other benefits of the exchange such as supporting Korea’s jewelry sector and aiding gold price discovery.

The Korea Exchange group (KRX) was chosen to actually run the gold exchange, and the KRX launched its gold spot market in March 2014.

The KRX gold spot market uses a trade settlement and custody platform created and managed by Korea Securities Depository. The KSD, also headquartered in Busan, is a publicly owned organization that provides settlement, clearing and securities services to the Korean financial markets.

Transactions on the KRX gold exchange are free of capital gains tax and also free of value-added tax (VAT) as long as the gold is not physically withdrawn from the Exchange.

Gold withdrawn from the custody of the KSD is levied with a 10% VAT charge. Until Dec. 31, designated importers of gold to be traded on the KRX gold exchange were exempt from.

As of 20 March 2015, the KRX gold exchange had 69 member entities comprising 58 companies from the gold sector and 11 Korean securities firms.

As of the end of January, Korea had $362.2 billion in foreign-exchange reserves and gold accounted for $4.8 billion, or 13 percent, of the total, according to the Bank of Korea.

Meanwhile, the Korean government introduced a gold exchange at the main Korea Exchange last year to boost gold transactions. However, only 10 kilograms of gold are traded each day at the exchange due to transaction taxes and other costs.