Korea Buys Paper Instead of Gold Amid Geopolitical Risks
South Korea's central bank, the Bank of Korea, has announced plans to increase its gold reserves. However, so far, it's only bought a different kind of paper - shares in the SPDR Gold Trust ETF.
The Bank of Korea purchased 679,765 shares of the SPDR Gold Trust ETF in the second quarter, valued at ₩354.5 billion ($250.41 million) at the end of June. This is not the same as holding physical gold, but rather a convenient way for investors to play the gold market.
ETFs represent a basket of investments that trade on the market as a single entity, tracking the price of gold but introducing counterparty risks. The fund could have trouble sourcing metal and may not be backed to an appropriate level, or even closed down.
The Bank of Korea's Reserve Management Group Director Jung Hee-sup said that the central bank needed to increase its relatively small gold holdings amid heightened geopolitical risks. However, buying a U.S.-based gold ETF is a little like jumping from the frying pan into the fire, introducing many of the same risks central banks are trying to avoid with gold.
South Korea does have plans to increase its physical gold reserves, announcing a framework to purchase gold from South Korean miners at international spot prices. The Bank of Korea will purchase some of that output 'when market and reserve management conditions are favorable.'