Bank of Korea to Buy Physical Gold for First Time in 13 Years

The Bank of Korea is preparing to purchase physical gold for the first time since 2013, starting with domestically produced bullion that would otherwise be exported. The move creates a new channel for adding gold to the country's foreign exchange reserves as the central bank seeks to diversify its assets against geopolitical and financial shocks.

Why the central bank is acting now

The Bank of Korea said Monday it has established a cooperative system with the Korea Exchange, Korea Securities Depository and domestic gold producer LS MnM. Korea Zinc is also expected to supply eligible gold.

The initiative gives the central bank a new channel for adding gold to reserves as it works to diversify its assets and strengthen its ability to withstand geopolitical and financial shocks.

How the domestic gold purchases will work

LS MnM and Korea Zinc produce an estimated 4 to 5 metric tons of gold annually for export. The Bank of Korea plans to purchase part of that output when market and reserve-management conditions are favorable.

Under the proposed arrangement, a producer would notify the central bank of the quantity available and its preferred transaction date. The central bank would then decide whether to buy after considering international gold prices and its reserve-management plans.

Transactions would be conducted through negotiated block trades on the Korea Exchange gold market to minimize their effect on public orders and domestic gold prices. The gold would be purchased at prices linked to international market rates and paid for in won, rather than acquired overseas with dollars.

Actual purchases will begin after the Korea Securities Depository completes the necessary storage infrastructure. The central bank has not yet determined the timing or size of its first transaction.

The Bank of Korea could also buy physical gold in international markets when domestic export supplies are insufficient or price conditions are unfavorable. Officials said the bank would select among domestically produced bullion, overseas purchases and gold exchange-traded funds based on market conditions. The central bank began buying a small amount of gold-linked ETFs during the second quarter, marking its first new gold investment since 2013.

Why officials stayed cautious for over a decade

Jeong Hee-sup, head of the Bank of Korea's Reserve Management Group, said the bank would begin physical purchases after the domestic storage system is completed. "We do not plan to make a large purchase all at once," Jeong said. "We intend to gradually increase the share of gold according to medium- and long-term needs."

The Bank of Korea has not purchased physical gold since 2013. Officials had been cautious because gold does not generate interest or dividends, incurs storage costs and can provide lower returns than stocks over some periods. The bank also faced criticism after expanding its gold holdings following the global financial crisis shortly before international prices declined.

What the reserve data shows

Renewed interest in gold reflects rising geopolitical risks and the broader accumulation of bullion by central banks seeking to diversify reserves. A 2026 World Gold Council survey found that 89% of central bankers expected global official gold reserves to increase over the following 12 months, while 45% expected their own institutions to add gold.

The Bank of Korea holds 104.4 metric tons of gold, a total that has remained unchanged since 2013. Gold represents about 1.1% of the reserves under the bank's accounting method and slightly more than 3% when valued at current market prices. The existing holdings are stored at the Bank of England. The central bank said it wants to increase that share gradually rather than establish a large short-term purchase target.

Why the timing question matters less now

Gold prices have also retreated from their record level, reducing some of the timing concerns surrounding new purchases. Spot gold reached a record of about $5,595 per ounce in January before falling toward $4,000 in late July. It traded at about $4,050 an ounce Friday.

Lee Chang-heon, head of reserve management planning at the central bank, said the decision was not based on a belief that gold had reached an ideal buying price. "The key is to establish a medium- and long-term goal for increasing gold holdings and gradually add to them while also using the new channel for purchasing domestically produced gold," Lee said.

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Courtesy: www.upi.com