How to Invest in Gold and What You Must Know: Why Gold Prices Differ From One Exchange to Another

Hello, this is Bitpunk. If you're interested in investing in gold, you've probably asked yourself something like this at least once.

"Should I buy physical gold? Or would it be better to invest through a bank's gold account? Wait, but... it's the same gold, so why are the prices different?"

The same gold at different prices? Yes, that really happens. Pretty puzzling, right? So what's the reason? It comes down to the trading method and the taxes and fees that apply!

Today, we'll look at why gold prices differ between the Korea Gold Exchange and banks or securities firms, and where it's best to buy gold.

Same Gold, Different Prices? Start by Understanding the Difference in Trading Methods

1) Korea Gold Exchange: Buying and Selling Physical Gold Directly

At the Korea Gold Exchange, you can directly buy and sell physical gold such as gold bars, pure gold, and jewelry. In other words, you can actually hold the gold you bought in your hands. However, an additional premium set by the Korea Gold Exchange may be added.

Also, when you buy gold from the Korea Gold Exchange, a fabrication fee and 10% VAT are charged on top, because physical gold has to be produced.

In short, buying gold from the Korea Gold Exchange has the advantage that you can withdraw it as physical gold and keep it in a safe at home. But in theory, since you've already paid 10% in fees, the gold price has to rise by more than that before you break even.

2) Gold Account: A Financial Product Linked to the Gold Price

Gold accounts (Gold Banking) at banks and securities firms don't involve holding actual gold. Instead, you buy and sell gold as an asset within your account. In other words, your account shows that you hold gold, but you don't actually own physical gold.

So why use a gold account? Because it's not physical gold, there's no separate VAT or fabrication cost. You can also trade easily anytime on your phone, and when the gold price rises, you can sell right away to lock in your profit.

But there are downsides, too. When you sell your gold, you have to pay a 15.4% dividend income tax. Also, even though it's the same gold, prices can vary from one provider to another, so you must compare prices yourself before buying.

Now do you see the difference between the two ways of trading gold? At the Korea Gold Exchange, you're buying real physical gold, while at banks and securities firms, you're investing in gold through a gold account, which is a financial product.

Why Do Gold Prices Differ Even Between Banks?

When you trade gold at a bank, you usually use a gold account. The problem is that gold prices can differ from bank to bank, even at the same moment. So rather than jumping into gold investing blindly, it's a good idea to compare gold prices at at least 2–3 places.

Reason 1: Differences in How Banks Source Gold

Banks also have to buy gold. Some banks buy it from the Korea Gold Exchange, while others source it directly from overseas. Naturally, if the purchase price is different, the selling price will be different too.

Reason 2: Differences in Spread

Banks set a gap between their buying and selling prices. This is called the bid-ask spread, and simply put, it's the bank's margin. For example, Bank A might set a gap of KRW 100 per gram, while Bank B might set a gap of KRW 200. Because of this difference, even the same 1g of gold can have different prices.

Reason 3: Exchange Rate Effects

Gold prices move based on the US dollar, so if each bank applies a different exchange rate, gold prices can differ even at the same moment.

So Where Should You Buy Gold?

So far, we've looked at the two main ways to invest in gold: through the Korea Gold Exchange and through a gold account. But where and how is it most profitable to buy gold?

It depends on your investment goal. Buying gold from the Korea Gold Exchange is suitable if you want to hold physical gold directly and plan to keep it for the long term. If you actually want to collect gold, or give it as a gift or pass it down as an inheritance, the Korea Gold Exchange is a good choice.

On the other hand, if you want to profit from changes in the gold price, a gold account is the better option. Of course, you'll have to pay dividend income tax, but for short-term investing aimed at capital gains from rising gold prices, a gold account is simple and convenient.

Wrapping Up

That covers what you must know before investing in gold. Gold trades at different prices depending on the trading method, taxes, and fees. So before investing in gold, it's important to look into prices and investment methods, and then carefully choose the option that suits you best.