South Korea became a major re-distribution centre for gold in the mid-1990s, importing
over 400 tonnes in 1996, but re-exporting most of it again almost immediately
to other Asian markets such as Hong Kong and Singapore.
In reality South Korea was no more than a transit point on the way to these other
countries. The trade came about because of an interest rate arbitrage between
US dollars and South Korean won, in which a difference of up to 8% occurred. Korean
trading companies took advantage of a government 'deferred payment' scheme, designed
to offer them credit, under which they could borrow dollars for a set period.
They used the dollars to buy gold, imported it, often as part of long-term contracts
to supply bullion banks in Hong Kong or Singapore.
The gold was then exported to them and the dollars generated sold immediately
against won, which offered a higher interest rate, and could be held until the
"deferred payment" to the government was due. The interest earned more than covered
the transport and insurance of the gold. These flows to and from South Korea led
to considerable difficulty in correctly assessing the true demand in various Asian
countries.