The Bank of Korea is set to resume gold purchases, shifting its long-standing preference for stocks as geopolitical risks increase the demand for safe assets.
On August 3, the central bank announced it has established a trading system to buy domestically produced gold in collaboration with local gold producers, the Korea Exchange (KRX), and the Korea Securities Depository (KSD). The purchases will be based on the international gold price for quantities intended for export.
The process will involve gold producers presenting the available quantities and desired timing for sales, with the Bank of Korea making decisions based on its gold management plans and market conditions.
Since the purchases will target quantities intended for export, the impact on domestic gold supply and prices is expected to be limited. The bank plans to use a negotiated bulk trading method to minimize market effects.
Historically, the Bank of Korea has been cautious about expanding its gold holdings, citing that gold is a non-yielding asset with lower long-term returns compared to foreign stocks. Earlier this year, the bank stated it had no plans to purchase gold.
However, with the recent normalization of geopolitical risks and the trend of central banks worldwide increasing their gold reserves, the Bank of Korea has determined that it is necessary to boost its holdings, especially given that its gold reserve ratio is lower than that of other countries. The diversification of purchasing routes for domestically produced gold has also influenced this decision.
Jung Hee-seop, head of the bank's foreign exchange management division, noted, "While it is difficult to say that gold prices are at an appropriate level, the recent decline in prices has somewhat eased the burden of purchasing." The bank has already begun investing in gold ETFs, with Jung stating, "We are considering ETFs as one of the channels for gold investment and started a small purchase in the second quarter of this year."
However, the timing and scale of actual domestic gold purchases have yet to be determined. Since the structure requires domestic producers to present quantities intended for export, the decision to purchase will depend on market conditions. The Bank of Korea plans to proceed with domestic gold purchases once the KSD's gold storage infrastructure is fully established.
Since 2013, the Bank of Korea has not made any additional gold purchases due to its lower liquidity compared to bonds or stocks. As of the end of last year, the bank's gold reserves stood at 104.4 tons, ranking 39th among central banks worldwide.
* This article has been translated by AI.
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