Bank of Korea Resumes Gold Purchases Amid Geopolitical Risks

The Bank of Korea has announced plans to resume gold purchases after a 13-year hiatus. This decision was made in response to geopolitical risks and the need to diversify its foreign reserves.

The bank will buy gold produced domestically by companies LS MNM and Korea Zinc, which obtain it as a byproduct from smelting copper and zinc. The annual output of these two companies is around 40-45 tons, with 4-5 tons being exported. The Bank of Korea plans to review requests from the companies to purchase their gold at international prices.

The purchase price will be based on international prices, not domestic ones. For example, if the domestic gold price is $100 and the overseas price is $110, the bank will buy it at $110. This transaction will occur through a 'negotiated block trade', where both price and quantity are agreed in advance.

The Bank of Korea currently holds 104.4 tons of gold, which accounts for only 1.1% ($4.79 billion) of its foreign reserves. The share of US dollars in its foreign reserves is 69.5%, above the global average of 56.8%. To adjust this ratio, the bank plans to increase its gold holdings.

The government has also announced a revision to the Act on Restriction on Special Cases Concerning Taxation, which will exempt value-added taxes when the Bank of Korea withdraws bullion from a gold custodian. This change is expected to take effect on January 1 next year.