The Gold Futures in the Korean Market

This study examines what lead investors to trade gold futures as well as what obstruct trade in the Korean gold futures market. We observe that high tax rate on gold trades make investors hesitate in trading gold in a legal market. Trades of the gold futures, however, sharply increase when the demand for importing gold increases, when the exchange-rate or political risk becomes heightened, and when the Korean stock market destabilizes. In contrast to our expectation, changes in gold prices seem not to stimulate trade of the gold futures. Then, we investigate whether the gold futures in the Korean market can meet investors’ demand. The trading strategy produce significant positive returns. In addition, efficient frontier can be significantly improved by including the gold futures into a portfolio with Korean stocks and bonds.