The Bank of Korea (BOK) has resumed buying gold for the first time in 13 years, indicating a major change in the central bank's reserve management strategy as geopolitical tensions and record-high gold prices reshape how central banks around the world manage their holdings. The central bank announced Monday that it has begun purchasing gold through two channels. First, its Reserve Management Group started investing in overseas-listed spot gold exchange-traded funds (ETFs) during the second quarter, albeit on a modest scale.
"We have begun purchasing spot gold ETFs on a minimal scale," said Jung Hee-sup, director-general of the Reserve Management Group. "Although ETFs are not treated as physical gold, the purchases increase our exposure to gold." Second, and perhaps more notably, the BOK has established a framework to purchase domestically produced gold for the first time. The central bank has formed a partnership with LS MnM Co., a copper smelting and refining company, along with the Korea Exchange (KRX) and the Korea Securities Depository (KSD) to facilitate these transactions.
The BOK has kept its gold holdings frozen at 104.4 metric tons since 2013, when it acquired 20 tons following purchases of 30 tons in 2012 and 40 tons in 2011. Those purchases, which account for nearly 90 percent of its current holdings, drew political criticism when gold prices subsequently plunged, making the central bank wary of further acquisitions.
The bank had also traditionally avoided gold because it generally generates lower returns than stocks or bonds and produces no income such as interest or dividends.
However, the calculus has changed. Gold prices climbed to record highs this year as inflation concerns and geopolitical risks fueled a global rally, prompting central banks worldwide to increase their purchases. "With geopolitical risks becoming a persistent feature of the global environment, interest in gold as a safe-haven asset has grown significantly among central banks," Jung said. "We also took into account the need to increase our gold holdings, which remain relatively low compared with those of other countries." Indeed, the BOK's gold holdings rank just 39th among central banks worldwide, according to the World Gold Council, and represent only about 1.1 percent of South Korea's foreign exchange reserves, which stood at $427.36 billion as of the end of June, including $4.79 billion in gold bullion. A recent pullback in gold prices has also made additional purchases more palatable.
Most gold produced in Korea comes as a byproduct of refining copper, lead, and zinc. LS MnM and Korea Zinc, the country's two leading producers, together generate approximately 40 to 50 metric tons annually, exporting roughly 10 percent of that amount.
The BOK is considering buying around 4 to 5 metric tons per year, specifically the portion not absorbed by domestic demand that would otherwise be exported. This approach is designed to avoid affecting local gold demand or prices. To further minimize market disruption, purchases will be conducted through negotiated over-the-counter block trades rather than regular exchange trading, with price and quantity agreed upon in advance through consultations with producers. When companies submit details on available volume and preferred timing, the BOK will decide whether to proceed based on domestic and international gold prices, its gold management plans, and market conditions. Gold will be acquired at international market prices using the KRX's trading and settlement infrastructure and storage facilities that the KSD is preparing.
The domestic channel offers additional advantages: purchases can be made in local currency rather than U.S. dollars, reducing foreign exchange risks compared with buying gold in overseas markets.
The move also allows the BOK to diversify where its reserves are stored. The bank's entire gold stock has traditionally been held at the Bank of England. Still, central banks globally are increasingly moving gold into domestic vaults or spreading holdings across multiple locations to mitigate geopolitical risks, a departure from the long-standing practice of concentrating reserves in London or New York.
According to this year's World Gold Council survey of 76 central banks, 57 percent said they used the Bank of England as a storage location, down 7 percentage points from a year earlier. "Keeping gold overseas makes it easier to sell and can generate income through gold lending, but we also took into account the relatively high storage costs," Jung explained.
The BOK has not disclosed a specific target for its gold holdings, and the timing of its first domestic purchase will depend on the completion of the necessary transaction infrastructure, producers' export schedules, and the bank's overall plans. "We will take a gradual, long-term approach to gold purchases," said Cho Sok-pang, head of the Reserve Management Group's planning department. "Rather than buying mechanically based on price movements, our focus is on gradually increasing the share of gold in our reserves."
After more than a decade on the sidelines, the BOK's cautious return to the gold market signals that even historically reluctant central banks now view the precious metal as an essential hedge in an increasingly uncertain global landscape.
