The Bank of Korea is considering increasing its gold reserves for the first time in more than a decade. The move is seen as likely to join a trend of global central banks buying gold that has pushed bullion prices to new highs.
Heung-Soon Jung, director of the Reserve Investment Division of the Bank of Korea’s Reserve Management Group, said the Bank of Korea plans to evaluate additional gold purchases in the medium to long term.
According to him, the bank last bought gold in 2013.
Jung’s comments provided a rare indication of the central bank’s stance on the gold market. While central bank gold purchases have been a major driver of price increases in recent years, they have rarely discussed them publicly.
A strong rally pushed gold prices above $4,380 an ounce last week before falling back in a sign of an overheating market.
This year’s big gains were also driven by speculation that the Federal Reserve will cut interest rates, as well as defensive trading that has attracted retail investors. Gold prices have risen more than 50% since the start of the year, supported by strong central bank demand.
Jung said his office would monitor market developments to determine the appropriate timing and amount of purchases. The final decision would depend on the position of South Korea's international reserves and movements in gold and won prices.
The Bank of Korea was previously criticized for buying gold from 2011 to 2013 before the metal's price entered a prolonged decline. Since then, no new purchases have been made, although other central banks have been actively accumulating gold in recent years.
The rise in gold prices has also caused some central banks to reassess their holdings for portfolio balancing purposes.
Currently, the Bank of Korea's gold reserves are stored in London to ensure better access to liquidity. At the same panel, the Bank of Mexico also explained that they chose London as a gold storage location because of its service and liquidity factors.
In a related development, China is reportedly persuading several foreign central banks to store some of their gold reserves in Beijing to strengthen its influence in the global bullion market.
