The Bank of Korea Resumes Physical Gold Purchases After 13 Years to Diversify Foreign Reserves

August 4th, according to the South Korean Seoul Economic Daily, the Bank of Korea has restarted its physical gold purchase plan after 13 years. The bank will purchase gold planned for export by South Korean gold producers through the Korea Exchange (KRX) gold market and the Korea Securities Depository (KSD) infrastructure.

The Bank of Korea announced on the 3rd that it has established a cooperation framework with the Korea Exchange, Korea Securities Depository, and gold producer LS MnM to promote domestic gold purchases. The related transactions will be conducted in bulk on the KRX gold market, with settlement and custody handled by the KSD.

The Bank of Korea stated that the purchase of export-oriented gold is mainly to reduce the impact on the domestic gold market price and to reduce disruption to the intraday market volatility through bulk transactions.

This is the first time the Bank of Korea has resumed physical gold purchases since 2013. Previously, the Bank of Korea purchased a total of 90 tons of gold between 2011 and 2013. However, due to a subsequent decline in the price of gold leading to valuation losses, it suspended physical gold purchases.

As of the end of June this year, the Bank of Korea's foreign exchange reserves stood at $427.36 billion, with the value of gold reserves at approximately $4.79 billion, accounting for only 1.1%. With major central banks around the world continuing to increase their gold allocations, the Bank of Korea's move is seen as a step to promote reserve diversification and reduce the concentration of US dollar assets.

However, the Bank of Korea stated that the expected future purchases would not be substantial. South Korea's domestic gold annual production is about 40 to 45 tons, of which only about 4 to 5 tons are exportable gold.

The Bank of Korea emphasized that the resumption of gold purchases this time is not based on a prediction of the gold price trend but on the timing of the transactions based on corporate procurement requests, domestic and international gold prices, and market conditions.