BOK Resumes Physical Gold Purchases After 13-Year Hiatus
The Bank of Korea (BOK) has resumed physical gold purchases after a 13-year hiatus. The target is domestic gold produced by companies like LS MnM, which is slated for export overseas. This decision comes as part of efforts to expand its foreign exchange reserves and diversify its composition.
The BOK had previously bought gold from 2011 to 2013 but halted purchases due to valuation losses when gold prices plummeted. The central bank's gold holdings currently stand at 104.4 tons, or 3.5% of its foreign exchange reserves, ranking around 40th in the world.
The BOK has established a cooperative framework with the Korea Exchange, the Korea Securities Depository, and LS MnM to facilitate the purchase of domestically produced gold. When a domestic producer requests the purchase of volumes slated for export, the BOK decides whether to proceed after considering domestic and international gold prices, market conditions, and its gold management plan.
The volume of domestic gold exports subject to purchase is around 4-5 tons per year, which is a small portion of Korea's total domestic gold production. Some point out that purchasing domestically produced gold may have limited practical effect in supporting domestic companies or expanding foreign exchange reserves.