South Korea to Expand Gold Reserves Through Domestic Buying Program

Central bank gold buying has surged in recent years, with net purchases by monetary authorities rising from an average of 473 tonnes between 2010 and 2021 to nearly 1,000 tonnes over the last four years. While emerging market central banks have dominated this trend, a developed economy monetary authority has now announced plans to expand its own gold reserves through a domestic purchasing program.

On Monday, the Bank of Korea said it has established a framework to purchase gold from South Korean miners at international spot prices. The move marks the first expansion of the country's gold reserves in 13 years. South Korea currently holds just over 104 tonnes of gold, accounting for approximately 1.1 percent of its total reserves — a ratio far below that of most developed economies, where gold frequently represents a majority of total reserve holdings.

Bank of Korea Reserve Management Group head Jeong Hee-sup said the central bank has also begun purchasing gold ETF shares.

"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," Hee-sup said.

He emphasized that the domestic gold purchases represent part of a long-term strategy to expand the country's gold reserves.

"We do not plan to make a large purchase all at once. We intend to gradually increase the share of gold according to medium- and long-term needs."

The Korea Exchange and the Korea Securities Depository will facilitate the transactions, with domestic gold producers LS MnM and Korea Zinc supplying eligible gold. Korea Zinc is one of the world's largest non-ferrous metal smelters. The two miners produce 4 to 5 tonnes of gold annually. Officials say the Bank of Korea will purchase a portion of that output "when market and reserve management conditions are favorable."

The structure of the scheme allows the Bank of Korea to settle transactions in Korean won, meaning it will not need to draw on its foreign exchange reserves, which total roughly $410 billion. The gold will reportedly be stored in South Korea, whereas most of the country's gold reserves are currently held in London vaults. The decision to hold gold domestically aligns with a broader trend among central banks; Germany, the Netherlands, Hungary, and Poland have all moved to repatriate portions of their gold reserves in recent years.

Analysts say the move is unlikely to impact domestic gold prices because the central bank plans to purchase only gold intended for export at contract prices. However, it will reduce the amount of gold flowing into global supply.

Central banks have been accumulating gold to reduce their exposure to the U.S. dollar. Many countries have grown wary of the weaponization of the dollar as a foreign policy tool and the fiscal trajectory of the U.S. federal government. During a central bank panel discussion in London last month, Hee-sup indicated that these concerns are prominent in South Korea as well.

"Given gold's role as an inflation hedge and its potential as an alternative to the U.S. dollar, it's evident that gold should be considered one of the viable assets from a medium- to long-term perspective."

South Korea holds significantly less gold than most developed economies. The country aggressively expanded its reserves between 2011 and 2013, though as the Economic Times of India noted, "the timing appeared disastrous." Gold peaked at $1,920 per ounce in September 2011 before tumbling to $1,180 in 2013, a 38 percent decline. By 2015, unrealized losses reached 1.8 trillion won. The South Korean government and central bank faced heavy criticism over the investment decision and ended the purchasing program that year.

With gold now trading around $4,000 an ounce, the earlier decision has proven favorable in hindsight. The 90 tonnes of gold purchased during that period are now worth approximately $7 billion more than the Bank of Korea originally paid.

South Korea's renewed gold purchases come amid a broader central bank trend. Last year saw the fourth-largest expansion of central bank gold reserves on record, at 863 tonnes. While that figure was down 21 percent year-on-year, it remained well above the 2010–2021 annual average of 473 tonnes. The all-time high was set in 2022 at 1,136 tonnes — the highest level of net purchases on record dating back to 1950, including the period since the suspension of dollar convertibility into gold in 1971.

Last month, the European Central Bank confirmed that gold had overtaken U.S. Treasuries as the world's top reserve asset. According to an Official Monetary and Financial Institutions Forum (OMFIF) report, this shift has been "driven by protection against geopolitical risk and growing doubts about the stability of the international monetary system."

OMFIF head of research Andrea Correa said she expects the trend to continue for the foreseeable future.

"Gold is not moving anywhere. Reserve managers of the central banks are still very bullish on gold. Despite the fact that the gold value itself keeps rising, they are still demanding it."