The Bank of Korea has made its first gold-related investment in 13 years, joining a global trend among reserve managers using precious metals to hedge against geopolitical and economic uncertainty. Rather than purchasing physical gold, the central bank bought shares of the SPDR Gold Shares (GLD) ETF, the world's largest physically-backed gold ETF.
According to a filing with the U.S. Securities and Exchange Commission, the Bank of Korea held approximately 679,765 shares of the ETF as of the end of the second quarter, valued at around $250 million. This marks the central bank's first gold-linked investment since 2013. The filing revealed that the Bank of Korea did not hold any GLD shares at the end of the first quarter.
This transaction does not directly increase South Korea's official gold reserves. Under reserve asset classification rules, gold ETFs are treated as securities and thus fall under foreign exchange reserves, not physical gold holdings. The central bank's physical gold holdings have remained unchanged for a long time, staying at about 104.4 tonnes since its last purchase in 2013.
Choi Kyuho, an economist at Hanwha Investment & Securities Co., believes the Bank of Korea's current gold allocation is still relatively low. "The Bank of Korea's gold allocation is quite low," he said, adding that "there is room for the Bank of Korea to increase its gold holdings from the perspective of aligning with international standards." Choi expects the central bank to continue raising its gold holdings in the future.
The Bank of Korea's renewed gold allocation comes amid a sustained expansion of gold reserves by central banks worldwide. Monetary authorities are diversifying their reserves by increasing gold allocations to address geopolitical and financial risks. Data from the World Gold Council shows that global central banks purchased a net 289 tonnes of gold in the three months ending June, setting a record for the same period in history.
South Korea had not been significantly participating in this global gold-buying trend until now. By gaining gold exposure through an ETF, the Bank of Korea has begun re-engaging with the gold market in a manner different from traditional physical gold reserves. Earlier this month, the central bank also announced plans to establish a framework for purchasing domestic refined gold, its first such move in nearly 60 years.
The Bank of Korea stated that this arrangement aims to expand gold procurement channels while supporting a gradual increase in gold's share of its foreign exchange reserves. The ETF investment provides another allocation method. Compared to directly buying and storing physical gold, gold ETFs offer the central bank exposure to gold prices while providing higher liquidity and trading convenience.
For reserve management, the purposes of the two approaches also differ. Physical gold is typically held as a long-term reserve asset, while gold ETFs can be traded like other financial securities. This means that while the Bank of Korea's action has not changed its official physical gold reserves of about 104.4 tonnes, it has reopened the channel for gold allocation. With global central bank gold purchases remaining at high levels, market attention is now focused on whether the Bank of Korea will further expand its gold exposure in the future.
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