Key Highlights :
Despite central banks around the world buying gold in a recent buying spree to counter growing global economic unrest, the Bank of Korea (BOK) has remained cautious about buying more gold. In a report released on Tuesday, the BOK instead assessed that it will opt for maintaining its dollar liquidity as a way to secure foreign exchange reserves.
Central banks collectively bought a net 125 tons of gold in the first two months of 2023, marking the highest amount for the year-to-date period since they became net buyers in 2010, according to the World Gold Council (WGC). By country, the United States reported the largest amount in 2022, holding 8,133.46 tons. Germany came in second with 3,355.14 tons, followed by Italy with 2,451.84 tons, France with 2436.75 tons and Russia with 2301.64 tons.
Korea on the other hand stood in 36th place with 104.44 tons. The amount has remained unchanged since the first quarter of 2013. The country's gold accounts for 1.14 percent of its $421 billion in foreign exchange reserves in total as of May. All of the gold possessed by the BOK is stored in the Bank of England.
The BOK's report noted that a cautious approach is necessary for determining whether to increase the ratio of gold in the foreign exchange reserves. It also cited the uncertainty of gold prices, positive real interest rates, and the difficulty of selling gold for liquidity purposes as reasons for being prudent in buying more gold over dollars.
The BOK's decision to remain cautious about buying more gold is in line with its long-term strategy of maintaining a stable foreign exchange reserve. The BOK has consistently maintained a “dollar-centric” approach to managing foreign exchange reserves, with the US dollar making up the majority of its reserves.
The BOK's decision to stay away from buying more gold also reflects the country's overall risk-averse attitude toward investments. As a small, export-oriented economy, Korea is generally more sensitive to global economic trends and market volatility. This is reflected in the country's relatively conservative approach to investments, which is why the BOK is opting to maintain its dollar liquidity rather than taking on additional risk by investing in gold.
In conclusion, the Bank of Korea's decision to remain cautious about buying more gold despite a recent buying spree of gold by central banks around the world to counter growing global economic unrest is in line with the country's long-term strategy of maintaining a stable foreign exchange reserve and its overall risk-averse attitude toward investments.