Gold prices in Korea are showing extreme volatility, surging past 200,000 won per gram for the first time ever and then plunging more than 10 percent on the same day. The sharp rally in gold sparked speculative buying, but profit-taking quickly cooled the market. In the longer term, the outlook for gold prices remains bullish, though experts warn that buying at inflated levels could lead to losses.

According to the Korea Exchange (KRX) on October 1, domestic gold prices briefly topped 200,000 won per gram during intraday trading, the highest on record. While gold traded on the local exchange jumped about 13.9 percent in just a week since September 24, international gold prices rose only around 3 percent. The so-called “kimchi premium,” the gap between domestic and global gold prices, stood at 11.7 percent as of September 30.

Analysts attribute the trend to a sudden concentration of investment demand in the domestic market. After a short correction between May and July this year, gold prices in Korea began climbing steeply in mid-August, fueling speculative sentiment.

However, after hitting as high as 203,000 won in the morning, gold prices tumbled 11 percent within hours, dropping back to the 180,000-won range. The “ACE KRX Gold Spot” exchange-traded fund (ETF), which tracks the KRX gold market, triggered a static volatility interruption (VI), which is activated when prices fluctuate more than 10 percent from the previous single-price transaction.

Given that gold typically does not experience such large swings, a fluctuation of over 10 percent is considered unusual. A KRX official explained, “The main factor is demand outpacing supply, coupled with volatility in the global gold market.”

The KRX also issued a warning, saying, “With global market conditions likely to cause sharp price swings during the holiday period and the widening gap between domestic and international prices, investors should exercise caution.” Earlier this year, on February 14, the “kimchi premium” spiked above 20 percent as demand for safe-haven assets rose amid U.S. tariff policy uncertainty, but later shrank to 2 percent by the end of the month, inflicting losses on investors.

Despite the short-term turbulence, many expect gold prices to continue rising over the long run, as the upward cycle has been ongoing since last year. As of September 29, international spot gold was trading at US$3,866 per ounce, up 46.1 percent year-to-date. In real terms, adjusted for inflation, gold has broken its highest level since 1980.

The key drivers of gold prices are the value of the U.S. dollar and U.S. interest rates. Concerns over America’s fiscal soundness have eroded the dollar’s status as a safe-haven asset, boosting gold’s relative appeal. Fears of an economic slowdown from a potential U.S. government shutdown added fuel to the rally. Meanwhile, the Federal Reserve’s pivot toward rate cuts has increased gold’s attractiveness as an investment, while geopolitical uncertainties continue to support demand for the precious metal.