Gold bars are on display at the Korea Gold Exchange, Jan. 31. Yonhap
Some experts say ‘buy’ timing has passed amid skyrocketing prices
By Lee Kyung-min
The gold holdings of the Bank of Korea (BOK) remained unchanged for years, due mainly to its policy mandate that limits the illiquid and highly volatile safe-haven asset to a “mid- to long-term consideration,” according to market experts on Thursday.
Further stymying the central bank from buying the precious metal is growing concerns over the nation’s diminishing foreign currency reserves against the rapid depreciation of the Korean won over the past few months.
Some also say the golden time to buy the precious metal has long passed, with criticism over the opportunity costs lingering about the central bank’s portfolio management.
“Criticism of the central bank for failing to timely increase gold holdings is nothing new,” a market watcher said on condition of anonymity.
Gold price remained under $2,000 in early 2023 but has since tracked up through last year.
Spot gold hit a year-to-date high of $2,911.30 (4.2 million won) per ounce Monday, the seventh new high this year. Some expect the price will soon exceed $3,000.
“It has practically become bitcoin. Now is not the time to discuss bolstering the gold holdings. Only criticism will abound over how the central bank could have and should have invested in gold,” the watcher said.
However, liquidity and safety take priority of the central bank’s foreign reserves over profitability, according to Hong Dong-hee, a senior investment strategist at Standard Chartered Bank Korea.
“The BOK’s foreign reserves have dipped over the past few months due to martial law developments. Add that to the continued global reign of the U.S. dollar powered by Trump tariff uncertainties — it will keep the central bank focused more on safe and stable management of its foreign assets,” Hong said.
The favored asset of choice for Korea is the U.S. dollar, a painstaking lesson learned from the Asian financial crisis, in his view.
“China has bolstered gold holdings, a move reflective of the extended U.S.-China hegemony war. The global geopolitics of this sort has no direct bearing on the Korean financial market. Korea needs assets for immediate smoothing operations in cases of sharp volatilities in the currency, as illustrated by the martial law fiasco-triggered won depreciation,” he said.
According to the BOK, its gold holdings last increased by 20 tons to 104.4 tons in 2013.
The value stood at $4.79 billion, constituting about 1.2 percent of its foreign reserves.
This contrasts with its peers, as pointed out by the World Gold Council.
The global gold data tracker said central banks bought a combined 1,000 tons of gold or more every year for the past three years. In 2024, the figure came to a four-year high of 1,186 tons.
The BOK’s gold holdings slid to 38th as of December last year, down from 32nd a year earlier.
Gold is not as liquid as the global currency, according to a BOK official at the foreign reserve management department.
“Foreign reserves must always be ready to immediately respond to foreign exchange market volatility in the event of external shocks, a characteristic gold fails to fulfill,” the official said. “The seemingly safe-haven asset also can be just as volatile, as evidenced by gold prices nearly halving in just a few years in the early 2010s.”
This was in reference to gold price tanking to around $1,000 per ounce in 2015, compared with nearly $1,900 per ounce in 2011.
The BOK’s increased holdings of 90 tons of gold between 2011 and 2013 took a dive, putting the central bank under a barrage of criticisms over mismanagement.
“We maintain our position that gold purchases will be pursued in the medium- to long-term,” the official said.
Calls are mounting for greater gold holdings now, but this is only evident in hindsight, according to Jang Jae-chul, a former economist at Citibank Korea and KB Securities.
Jang said, “Many say the price will top $3,000 per ounce, but you never know when it will crash. Profitability is important, but not to the extent that the country’s sound foreign currency management preparedness is compromised.”