The Bank of Korea will increase the amount of gold in its foreign reserves. Gold purchases, which were halted after 2013, will resume for the first time in 13 years. The Bank of Korea plans to buy gold produced domestically for export. The government decided to exempt value-added taxes in this process starting Jan. 1 next year.
The Bank of Korea said on the 3rd that it "decided to build a cooperative framework with related institutions, including domestic gold producers, Korea Exchange (KRX), and Korea Securities Depository (KSD), to establish the institutional basis for purchasing domestically produced gold." The actual timing of purchases is expected to be after Korea Exchange (KRX) and Korea Securities Depository (KSD) set up the related systems.
The Bank of Korea has not bought gold since 2013. It said returns were lower than stocks and immediate conversion to cash was difficult. After buying 20 tons in 2013, it even posted losses as gold prices fell. As a result, gold holdings stayed at 104.4 tons, dropping to 39th in the world. As of the end of June, gold accounted for 1.1% ($4.79 billion) of foreign reserves.
The Bank of Korea judged it needs to increase gold holdings again to respond to geopolitical risks such as war. With the share of U.S. dollars in foreign reserves at 69.5%, above the global average of 56.8%, it said an adjustment in the ratio is necessary.
Instead of the existing method of buying gold overseas and storing it locally, the Bank of Korea plans to purchase gold produced for export by domestic companies LS MNM and Korea Zinc. The two companies sell at home and abroad gold obtained as a byproduct from smelting copper and zinc. Their annual gold output is 40 to 45 tons, of which 4 to 5 tons are reportedly exported.
The Bank of Korea plans to review whether to buy when LS MNM and Korea Zinc ask it to purchase gold. The purchase price will be based on international prices. If the domestic gold price is $100 and the overseas price is $110, it will buy at $110. The transaction will proceed through a "negotiated block trade," in which price and quantity are agreed in advance, rather than ordinary on-exchange trading. Gold bought this way will be stored in vaults such as at Korea Securities Depository (KSD).
Meanwhile, through the "2026 tax reform plan," the government announced a revision to the Act on Restriction on Special Cases Concerning Taxation to exempt value-added taxes when the Bank of Korea withdraws bullion (gold bars with a purity of 99.99% or higher) from a gold custodian. When the Central Bank purchases an asset, value-added taxes are exempt, but gold was the only exception without such a rule.
Meanwhile, in the second quarter of this year, the Bank of Korea bought an exchange-traded fund (ETF) backed by gold. Gold ETFs are classified as securities, not gold, within foreign reserves. The Bank of Korea did not disclose the specific purchase amount. A Bank of Korea official said, "We are considering ETFs as one of the channels for buying gold."