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Bank of Korea to buy physical gold for first time since 2013
South Korea's central bank will buy physical gold for the first time since 2013, starting with domestically produced bullion. The move diversifies reserves as gold prices have retreated from record highs.
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The Bank of Korea is preparing to buy physical gold for the first time in 13 years, starting with domestically produced bullion that otherwise would have been exported.
The central bank 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 creates a new channel for adding gold to the country's foreign exchange reserves as the central bank seeks to diversify its assets and strengthen its ability to withstand geopolitical and financial shocks.
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 exchange-traded funds during the second quarter, marking its first new gold investment since 2013.
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.