The Bank of Korea’s Stance on Gold Purchases
The Bank of Korea (BOK) has recently addressed questions regarding its decision not to increase gold purchases, unlike some other central banks. Choi Wan-ho, from the BOK’s foreign capital management agency, explained this rationale in a blog post on April 30.
Reasoning Behind BOK’s Reluctance
In his article titled ‘Gold as foreign exchange reserves, how should I look at it?’, Choi highlighted the high volatility and low liquidity of gold as the primary reasons for the BOK’s cautious approach towards gold purchases.
Choi pointed out, “Gold has shown similar volatility to stocks in the past, but yields have generally been lower than stocks. It is not as liquid compared to bonds and stocks.”
Contrasting Approaches
Choi noted the recent actions of central banks like China, Russia, and Turkey that have driven gold prices to new highs through large-scale purchases. However, he emphasized that Korea differs from these countries, which have various reasons like reducing dependence on the U.S. dollar or high demand for safe assets due to geopolitical tensions.
Future Considerations
Despite the current stance, Choi mentioned that the BOK is contemplating future gold purchases based on reserve requirements and market conditions. He stated, “The Bank of Korea is considering additional gold purchases from a mid- to long-term perspective, assessing trends in foreign exchange reserves.”
The BOK has a history of buying gold, holding 104.4 tons in reserves until 2013, constituting 1.1% of its total reserves. However, since then, the Bank has preferred maintaining dollar liquidity over increasing gold holdings.
Conclusion
As market conditions evolve, the Bank of Korea remains open to the possibility of revisiting its stance on gold purchases. By carefully monitoring global financial trends, the BOK aims to make informed decisions that align with its reserve requirements and long-term objectives.