Utilization of Gold Spot ETFs for Security Lending and Market Liquidity Enhancement in Korea
The Korea Exchange is considering the use of gold spot ETFs in security lending transactions to enhance liquidity in the domestic gold market. This strategy has been prompted by the soaring gold prices and the resulting liquidity deficiencies in the market. Leveraging the gold held by gold spot ETFs in security lending could potentially provide much-needed liquidity and reduce the 'Kimchi Premium' in the Korean gold market. Implementation of this strategy, however, would require legal and institutional amendments, along with collaboration with the Financial Services Commission.
Meanwhile, the net assets of domestic gold spot ETFs have surpassed 1 trillion won, setting a new precedent in the industry. Notably, the 'ACE KRX Gold Spot' ETF has shown rapid growth since its listing in 2021, with current net assets totaling approximately 1.262 trillion won. This growth trend is attributed largely to the convenience of investing without opening a gold market account. Nonetheless, concerns exist regarding increased volatility due to an imbalance in supply and demand in a market with limited liquidity.
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[Gold Spot ETF Boom] Could it be the Key to Boosting KRX Gold Market Liquidity? - Yonhap InfomaxAs a measure to enhance the domestic gold market's liquidity, attention is being paid to whether the recently booming Gold Spot Exchange Traded Funds (ETFs) will be utilized. On the 14th, the Korea Exchange is internally reviewing ways to use the gold held by domestic Gold Spot ETFs for securities lending transactions. A securities lending transaction refers to a contract in which the investor holding the securities (lender) lends the securities to another investor (borrower) in exchange for a certain fee. Recently, the gold market has seen increased price volatility due to a lack of liquidity. A preference for gold as a safe asset grew amid the intensification of trade disputes, leading to a scarcity phenomenon. In February, the price of gold surged nearly 20% above the international market rate.
[Gold Spot ETF Boom] What's the Fate of 'Whale in Pond'? ... "Benefiting from Kimchi Premium Boom" - Yonhap InfomaxRecently, the popularity of Exchange Traded Funds (ETFs) based on domestic gold spot as underlying assets has been soaring, buoyed by the preference for safe assets. It is remarked that the net assets of ETFs have grown to the extent that they can be directly compared to the gold spot market, thus becoming a significant market player. According to Yonhap Infomax ETF Comprehensive (screen number 7101) on the 14th, the net asset value of the 'ACE KRX Gold Spot' ETF is approximately 1.262 trillion Won. It is the only ETF listed on the domestic exchange with gold spot as its underlying asset. The net asset value of the gold spot ETF has grown rapidly recently, although it was first listed in 2021.