(Kitco News) – The Bank of Korea (BOK) has responded to questions from inside and outside the country as to why they have not joined other central banks in ramping up gold purchases.
Choi Wan-ho, head of the management planning team at the Bank of Korea's foreign capital management agency, published an article on the BOK's blog on April 30 in which he explained the reasoning behind the central bank’s reticence to buy gold.
In ‘Gold as foreign exchange reserves, how should I look at it?’ Choi said the precious metal’s high volatility and low liquidity are the reasons why the Bank of Korea is most reluctant to buy gold.
“In the past, gold has shown a similar level of volatility to stocks, but yields have generally fallen short of stocks,” Choi said. “It is an asset that is not highly liquid compared to bonds and stocks.”
The article pointed out that the central banks of China, Russia, and Turkey have recently driven gold prices to new all-time highs through their large-scale purchases, but that these countries are different from Korea. Most of the central banks of these countries are trying to reduce their dependence on the U.S. dollar, or they have high demand for safe assets due to wars.
Choi also shared concerns about high gold prices as another reason for the BOK to hold off purchases for the time being, saying that as U.S. rate cut expectations have waned, gold prices have come down, and gold futures buying positions for speculative purposes have accumulated, which could serve to drive further price declines.
Still, the central bank official said they were mulling future gold purchases based on the BOK’s reserve requirements and the state of the market.
“The Bank of Korea is considering purchasing additional gold from a mid- to long-term perspective, looking at the trend of increasing foreign exchange reserves in the future,” Choi said. “To this end, we will determine the timing and size of gold investments by checking the development of the domestic foreign exchange market and trends in the international gold market.”
The Bank of Korea has been a significant bullion buyer in the past. It bought 40 tons of gold in 2011, 30 tons in 2012, and 20 tons in 2013, and maintained a steady total of 104.4 tons of gold in its reserves for 10 years through 2023. The precious metal accounts for 1.1% of its $419.3 billion in total reserves as of the end of March.
In June 2023, the BOK said it preferred to maintain dollar liquidity rather than boosting its gold holdings. It has not made any gold purchases since 2013.
