Why everyone is rushing to buy gold — except the Bank of Korea

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Why everyone is rushing to buy gold — except the Bank of Korea

Published: 13 Feb. 2025, 18:26

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

A pedestrian walks past a gold exchange in downtown Seoul on Feb. 13. [YONHAP]

As the market grows jittery over U.S. President Donald Trump’s tariff threats, investors are flocking to secure bullion in pursuit of safe-haven assets, pushing gold prices to a fresh record.

Despite the rising fear of missing out, however, the Bank of Korea (BOK), remains an exception to the worldwide gold rush.

Gold prices have been smashing records as of late, both globally and domestically. The closing price of a 100-gram (3.5-ounce) gold bar breached the 160,000 won ($110) per gram threshold for the first time ever on Thursday, hitting 163,300 won on the Korea Exchange.

Strained by spiking demand, the Korea Minting, Security Printing & ID Card Operating Corporation (Komsco) halted the sale of gold bars on Wednesday, citing a supply shortage.

Whenever gold prices surge, the BOK’s foreign exchange reserves find themselves under scrutiny as onlookers question why the central bank is declining to increase its gold holdings.

“I finally bought some gold,” BOK Gov. Rhee Chang-yong reportedly joked while eating a gold bar-shaped cake at a coffee shop in Busan last August.

The BOK has not expanded its gold holdings since 2013; the bank has held its gold reserve steady at 104.4 tonnes (115 tons) for more than a decade, which makes up around 2 percent of the country’s foreign exchange reserves.

The BOK's gold holdings ranked 38th among those of the world’s central banks last year, six notches weaker than their 2013 spot, according to the World Gold Council. When including the International Monetary Fund and the European Central Bank, its ranking slips to 40th place.

The BOK, however, still appears unfazed.

One of the reasons behind the central bank’s reluctance is the recent depreciation of the won and the resulting decline in foreign exchange reserves.

Korea’s foreign reserves had fallen $4.59 billion from a month earlier to $411.01 billion by the end of January, hovering barely above the $410 billion mark.

Foreign exchange reserves, on which a central bank or the government can draw to mitigate devaluation pressure, are a crucial indicator of a nation’s sovereign credit. For Korea, the $400 billion threshold has been often cited as psychologically significant, denoting a stable buffer.

“During a decline in foreign reserves, the priority should be the stable operation of the reserve, rather than pursuing higher gains with new investments,” said Joo Jae-hyun, head of the BOK’s Reserve Management Group.

Gold is also less liquid compared to securities such as stocks and bonds, requires extra storage expenses and does not generate dividends or interest payments.

Its return on investment falls behind that of stocks as well. The price of gold, per ounce, rose 84.6 percent on the London Bullion Market Association between 2013 and 2024 while S&P 500 rose 367.7 percent during the same period.

The proportion of stocks in Korea’s foreign reserves rose from 6.2 percent by the end of 2014 to 10.9 percent by 2023.

Moreover, central banks that rush to secure gold are often those with strained relations with the United States, such as China and Russia, which aim to lower their reliance on the dollar, or those of nations seeking safe assets due to internal and external uncertainties.

BY KIM KYUNG-HEE, SHIN HA-NEE [[email protected]]