Asset managers offer gifts for ETF purchases amid rising gold prices and widening ‘Kimchi premium’ concerns
Investment in domestic gold spot exchange-traded funds (ETFs) is showing signs of overheating, drawing criticism as asset managers behind these products issue investment warnings while simultaneously running promotional events. With gold prices rising and demand surging, the “Kimchi premium” — where domestic gold prices exceed international rates — has widened. Despite issuing investment caution notices for ETFs tracking domestic gold prices, these firms are offering gifts to investors who purchase related ETFs. Critics argue this is exacerbating investor confusion.
Korea Investment Management has been running a promotional event called “Lucky Gold Hunt” since the 1st of last month, offering “Gold Temple” prizes by lottery to those who buy at least 10 shares of its gold spot ETF by the end of this month.
Mirae Asset Global Investments is also advertising a lottery for a 1-don pure gold ring to investors who purchase at least 10 shares of its gold spot ETF or market-leading stock ETFs by the 31st of this month. The event began on the 24th of last month.
The two ETFs available for domestic gold spot investment are Korea Investment Management’s “ACE KRX Gold Spot” and Mirae Asset Global Investments’ “TIGER KRX Gold Spot,” both launched in June. Both track the “KRX Gold Spot Index” as their underlying benchmark.
These ETFs surged 52% over the past three months (July 16 to October 15). During this period, individual investors purchased 414 billion Korean won and 322.2 billion Korean won worth of each ETF, respectively, ranking them third and sixth in individual net purchases.
While investors in these ETFs have seen significant returns due to the Kimchi premium, concerns persist about potential losses if the premium collapses. The wider the premium, the higher the risk of short-term price corrections. In February of this year, for instance, the ACE KRX Gold Spot ETF plummeted 16% over nine trading days as the premium suddenly evaporated.
As of the 15th, the divergence rate between KRX gold market prices and international gold prices stood at 18.56%, nearly double the 9.81% recorded on the 1st of this month.
With investment risks rising, both asset managers issued investment caution notices starting from October 1. Korea Investment Management and Mirae Asset Global Investments emphasized that domestic gold prices, while influenced by international rates, also fluctuate due to exchange rates and domestic supply-demand dynamics, urging investor caution.
However, disclosures about the widening divergence rate remain limited to public notices or announcements that investors must actively seek. Compared to event promotions advertised via homepage pop-ups and press releases, these warnings appear relatively passive.
The financial investment industry has expressed concerns over excessive gold investment fervor. The Korea Exchange had initially planned a gold bar giveaway event for investors who opened new gold spot accounts or met trading thresholds between the 20th and 31st of next month, with participation from NH Investment & Securities, Samsung Securities, and Kiwoom Securities.
However, the exchange recently decided to temporarily suspend the event. Following two investment caution notices on the 26th of last month and the 1st of this month amid rising gold prices, it deemed marketing at this stage inappropriate. There are no current plans to revive the event.
Korea Investment Management and Mirae Asset Global Investments intend to continue their ongoing events as scheduled. A spokesperson explained, “Since these events were already announced and launched, canceling them could harm existing participants and those planning to join.”
Korea Investment Management, however, stated it would refrain from actively promoting or advertising the event for the time being.
