Bank of Korea Resumes Physical Gold Purchases After 13-Year Hiatus

The Bank of Korea (BOK) has resumed physical gold purchases for the first time in 13 years, following a similar move into gold exchange-traded funds (ETFs) earlier this year. The central bank will buy volumes that domestic gold producers plan to export overseas through the cooperation of the Korea Exchange (KRX), the Korea Securities Depository (KSD), and LS MnM.

The BOK had last purchased gold in 2013, buying a total of 90 tons after valuation losses arose from a subsequent drop in gold prices. The resumption of purchases is intended to reduce the impact on the domestic gold market by only purchasing export-bound volumes. Transactions will utilize block trading in the KRX gold market, with the KSD handling settlement and custody.

The actual timing of purchases will be determined by considering the KSD's infrastructure development, producers' export plans, and the BOK's gold management plan. The measure is significant in that it lays the groundwork for increasing the share of gold holdings over the medium to long term.

As of the end of June, the BOK's foreign exchange reserves stood at $427.36 billion, with gold accounting for just $4.79 billion, or 1.1%. The move is seen as an effort by the BOK to alter its dollar-centered foreign asset composition and diversify its reserves.