Bank of Korea to Buy Gold for the First Time in 13 Years, Utilizing Domestic Market

Establishing Cooperative Framework with Domestic Gold Producers
Purchasing Export-bound Gold at International Market Prices
“Significant Step in Diversifying Gold Acquisition Channels... Timing Remains Undecided”
First Major Policy Shift in 13 Years; Spot Gold ETF Purchases Began in Q2

The Bank of Korea is resuming its purchase of physical gold for the first time in 13 years. By establishing a multilateral cooperation system for purchasing domestically produced gold, the central bank has initiated its gold procurement. Since the second quarter of this year, it has also started buying gold spot ETFs (Exchange Traded Funds) listed overseas. In effect, the bank has shifted its long-standing 13-year stance on ‘gold investment.’

An employee at the Korea Gold Exchange in Jongno-gu, Seoul is holding up a gold bar. Photo by Yonhap News

On August 3, the Bank of Korea announced that it has established a cooperation framework with LS MnM, a domestic gold producer, the Korea Exchange, and the Korea Securities Depository to lay the institutional groundwork for purchasing gold produced in Korea.

The Bank of Korea plans to purchase the gold that domestic producers are planning to export overseas by utilizing the trading, settlement, and custody infrastructure of the domestic gold market (KRX Gold Market) operated by the Korea Exchange and the Korea Securities Depository.

Domestic gold producers export a certain amount of gold obtained through the refining process, and the central bank will purchase a portion of these export-bound supplies. The producer informs the Bank of Korea of the available quantity and the desired timing for the sale; then the central bank decides whether or not to proceed, taking into account its gold management plan and the overall market situation.

Currently, gold is produced in Korea as a by-product during the refining of copper, copper, or zinc. LS MnM and Korea Zinc are leading gold producers, producing about 40 to 45 tons of gold annually. Of this amount, a portion that is not consumed domestically—estimated at around 4 to 5 tons—is exported overseas.

The purchases will be paid in Korean won, with the price set based on the international gold price. The transaction reflects the international gold price, converted into won using the won-to-dollar exchange rate. The central bank intends to minimize market impact by using over-the-counter (negotiated bulk trading) transactions instead of regular on-exchange trades. Jeong Heeseop, Head of the Foreign Exchange Reserve Management Department at the Bank of Korea, explained, “Since the price and quantity are agreed upon in advance between the parties, these purchases do not appear in actual bid or ask quotes. The decision to act only in response to purchase requests from companies, rather than proactively buying, is aimed at minimizing the impact on domestic gold prices.”

The actual purchases are expected to begin once the necessary modifications to the relevant systems at the exchange and the Korea Securities Depository are complete. Jeong said, “It is difficult to specify exactly when purchases will take place, since the decision depends on the gold producer’s export plans and our own gold management strategy. The Korea Securities Depository is currently building the necessary custody infrastructure, and these preparations may also affect the timing of purchases.”

The central bank highlighted that the main significance of this decision is that it has secured a new domestic channel for gold purchases, in addition to the traditional purchase methods through overseas channels. Jeong added, “We’re diversifying our gold acquisition channels, providing a foundation for increasing long-term gold reserves. It’s also meaningful in terms of dispersing storage locations and strengthening our foreign exchange reserves.” He further commented, “For the producers, this creates a new domestic outlet for their gold other than exports, and for the exchange, it boosts the vitality of the domestic gold market by bringing in new participants. In this way, the cooperation system offers mutual benefits for all parties involved.”

During the second quarter of this year, the central bank began investing in overseas-listed gold spot ETFs, effectively marking its first gold investment transaction in 13 years, although the scale is said to be small. Jeong explained the reasoning behind the ETF purchase: “Previously, we have primarily bought physical gold, but now we’re diversifying our approach. ETFs are less visible to the market participants and allow for more immediate responses to market changes.”

This content was produced with the assistance of AI translation services.