On August 4, 2026, a piece of news rippled through the global precious metals market—the Bank of Korea officially announced the resumption of gold reserve allocation, incorporating gold ETFs into reserve investment and establishing a mechanism to purchase domestically produced gold. This is the first time since 2013 that this central bank of a major Asian economy has returned to the gold market, officially closing its 13-year gold purchase hiatus. And at a critical moment when spot gold had just returned above $4,200 and briefly broke through $4,300, the BOK's 'turnaround' provides a compelling footnote to the question 'Why buy gold?'
Dual-track Procurement: The Thought Behind a 'Cautious Restart'
Unlike the big-spending buying spree many outsiders imagined, the BOK has been quite restrained in its resumption. According to Jeong Hui-seop, head of the BOK's reserve management department, the central bank has begun investing in physical gold ETFs and established institutional arrangements for purchasing domestically produced gold. Going forward, it will gradually buy domestic gold through a cooperative system involving the Korea Exchange, Korea Securities Depository, and producers such as LS MnM and Korea Zinc, when market conditions and reserve management needs are appropriate.
The BOK has its own reasons for adopting the dual-track model of 'physical gold ETF + domestic purchases.' On one hand, gold ETFs offer good liquidity and convenient operations, enabling gradual position building. On the other, South Korea produces about 40-45 tonnes of gold annually, most of it as a by-product of copper and zinc smelting, with some 4-5 tonnes exported overseas—precisely the segment the central bank will mainly bid for. Jeong Hui-seop clearly stated that gold allocation is a medium- to long-term reserve management strategy: 'We will not buy in one large batch, but gradually raise gold's share of foreign exchange reserves based on medium- and long-term needs.' Buying in batches and at measured paces enhances operational flexibility and avoids a direct impact on market prices from concentrated purchases.
A Past of 'Buying at the Top': How a Lesson Turned into Experience
The BOK's caution is not without reason. In retrospect, its last large-scale buying occurred between 2011 and 2013, when it purchased a total of 90 tonnes of gold at an average cost of about $1,629 per ounce, spending approximately $4.7 billion. Almost all of that gold was bought near the top of the previous bull market—the international gold price turned bearish quickly after hitting an all-time high of $1,920.30 per ounce in September 2011, and by June 2013 had fallen to a low of $1,180.71, a cumulative drawdown of nearly 38.5%. The plunge left the BOK's gold holdings with a paper loss of about 27.5%, which expanded to roughly 1.8 trillion won by 2015, and the then-governor was consequently questioned by lawmakers.
However, as gold entered a new uptrend in recent years, that decision has ultimately proved its long-term value. The 90 tonnes are now worth about $11.8 billion, roughly $7 billion more than their original purchase cost. It is precisely this experience of being 'trapped first and later released' that has led the BOK to repeatedly stress: the resumption is not due to recent price corrections but to long-term asset allocation needs, and the timing will be determined flexibly based on domestic and international gold prices and market conditions, rather than anchored to a specific price. From 'lesson' to 'experience,' the BOK's changing stance reflects gold's resilience as a long-term reserve asset.
Why Buy Gold? Central Banks Around the World Are Answering with Action
South Korea's return to the gold market is just the latest example of the global trend toward reserve diversification. According to the World Gold Council's Q2 2026 Global Gold Demand Trends Report, central banks globally net purchased about 289 tonnes of gold in the quarter, up 62% year on year, a record for the period. Poland's central bank led globally with 51 tonnes, lifting its gold reserves to 632 tonnes; the People's Bank of China added 33 tonnes, continuing its long-term accumulation; and Russia trimmed 22 tonnes. The survey also showed that among 74 central banks polled, 45% plan to increase gold reserves in the coming year, and 89% expect global official gold reserves to rise further over the next 12 months.
From South Korea to Poland and China, why are global central banks continuing to increase their gold holdings? The answer boils down to several core attributes of gold:
- No reliance on any single sovereign credit: Gold is not anchored to any government's or issuer's credit and carries no counterparty default risk, making it naturally favored by official institutions when global uncertainty rises.
- Inflation hedge and value preservation: Over the long run, gold can hedge against inflation erosion and serves as an important alternative to dollar assets, suitable for inclusion in foreign exchange reserves and household asset allocation.
- Safe-haven nature: Geopolitical conflicts, financial sanctions risks, and fiscal deficit expansion have become the new global normal, keeping gold's safe-haven appeal in the spotlight.
- Reserve diversification: Amid de-dollarization, raising gold's share helps reduce excessive reliance on a single currency asset and optimizes the overall reserve structure.
Notably, South Korea's official gold reserves stand at about 104.4 tonnes, ranking 40th among the 100 countries tracked by the World Gold Council, but gold accounts for only 3.5% of its foreign exchange reserves—98th, ahead of only Chile and Colombia. Because the starting point is extremely low, its room for improvement is seen by the market as an important marginal signal: when a long-absent buyer starts returning, it shows that gold's reserve value is being more widely re-recognized.
Outlook for Gold Prices: Institutions Generally Optimistic, but Pace Bears Watching
With the 'slow variable' of central bank buying resonating alongside short-term capital flows, institutions generally remain optimistic on the gold outlook. Deutsche Bank reiterated its earlier forecast, saying gold is still in an 'explosive price action' phase and could rise to $4,700/oz by year-end. JPMorgan, though cutting its forecast, still expects a Q4 average of around $4,500. UBS strategists expect gold to reach $4,400 in September and $4,600 in December, and $5,000 by March 2027, if the Fed avoids further rate hikes, investment demand recovers, and central banks maintain strong purchases. The World Gold Council is relatively cautious, saying that absent major market changes, gold in the remainder of 2026 will likely trade in a range of roughly $4,100 plus or minus 5%.
On the technical side, $3,959/oz (the swing low formed in June this year) is a key support level to watch, while $4,500 is the next resistance to watch. Market data also shows that the Bollinger Band width of the world's largest gold ETF has narrowed to its lowest level since August 2025. Historically, such volatility compression often signals the brewing of a new move—although the direction still needs confirmation from macro signals.
A Rational View: Central Bank Buying Supports the Floor, but Is Not an 'Engine of Gains'
It should be noted that central bank buying plays more of a 'price floor support' role than a sustained upward driver. Central banks usually buy gradually according to long-term plans and tend to add positions on price dips. In fact, even as global central banks continued record purchases, gold prices still fell 29% cumulatively from January to June this year. For gold to start a trend move, it still needs a joint return of ETF flows, institutional investors, and retail investors. Goldman Sachs also pointed out that the re-entry of Chinese capital was an important immediate trigger for this rally—Shanghai Futures Exchange gold open interest rose by about 19,000 lots in a single day, while Huaan Gold ETF saw net inflows for many consecutive days, absorbing billions of yuan in total, showing allocation money's recognition of value near $4,000.
For Ordinary Investors: Turn the Central Bank's 'Slow Logic' into Your Own Allocation Approach
Central bank actions offer three direct takeaways for ordinary investors:
- Long-term perspective: Gold's allocation value pays off in years, not weeks. The BOK's 2011 'buy at the top' ultimately still generated rich returns—a testament to the long-term holding logic.
- Batch positioning: Following the central bank's 'no single bulk buying' approach, investors can build positions in batches during pullbacks to avoid chasing highs and single-point bets.
- Portfolio thinking: Gold has low correlation with stocks and bonds, making it an effective tool to diversify portfolio risk in an environment of periodic A-share corrections and rising macroeconomic uncertainty.
Back to the opening question: Why buy gold? The BOK's turnaround after 13 years offers a cycle-spanning answer—gold may not surprise at every moment, but in an era where sovereign credit volatility, inflationary pressures, and geopolitical risks are intertwined, it remains the 'ballast stone' that depends on no one's promise yet reliably underpins value. For ordinary investors, understanding the 'slow variable' logic of central bank gold buying and rationally participating in batches at key levels may be the most worthwhile gold investment approach right now.
