Markets

New South Korea Gold Exchange More Proof Of Strong Asian Demand For The Yellow Metal

(Kitco News) -With so much demand for physical gold in Asia, analysts are not surprised that South Korea is trying to get in on the action.

On Monday, South Korea's Financial Services Commission said that in the first quarter of 2014, spot gold will be traded on the country's markets like listed stocks.

According to media reports, the commission said the gold exchange is being created to combat "underground gold transactions." The commission added that, people have been buying and selling black-market gold as a way to avoid the country's value added taxes.

Howard Wen, analyst at HBSC said, he doesn't know how big the exchange will be, but it does continue to add to the argument that Asian consumers want physical gold.

Wen added that although the South Korean market is relatively small, easier access to gold is definitely positive for the market.

George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures, said with so much trading activity in Hong Kong and Tokyo and new gold vaults in Singapore, it is not surprising that South Korea wants to create their own market.

"There is tremendous interest in Asia for trading and buying gold," he said.

Gero added, as another example of strong dedmand in Asia, a new overnight contract introduced on the Shanghai Futures Exchange has seen surprisingly strong volume since it started trading on July 5.

The creation of new exchanges means there will be new arbitrage opportunities and more liquidity, which is something the Asian market could use, he added.

Colin Cieszynsk, senior market analyst at CMC Markets Canada, agreed that increased liquidity will help the market. He added it could also help to lower some of the volatility sometimes seen during the Asian trading session.

"Gold is such a huge market that it could support more exchanges even if it is only localized trading," he said. "There is no question that liquidity is a good thing."

Although Asia appears to be setting its self up as physical gold hub, analysts are not sure that these countries will be able to dominate the market. Wen said he would expect investor demand to continue to dominate price trends for the yellow metal.

"It's true that whoever holds the gold has control, but the bulk of the paper trading still happens on Comex," said Wen.

Gero added that the gold market is too big to be controlled by one country or even one region.

"I don't think any one area can control prices for very long," he said.

Read the latest news in gold and precious metals markets at Kitco News.

By Neils Christensen of Kitco News nchristensen@kitco.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics

Commodities

Latest Markets Videos