Bank of Korea’s ETF Route Could Change How Central Banks Buy Gold

Gold’s latest push above $4,100 is drawing attention to an unusual potential buyer: a central bank that may choose an exchange-traded fund instead of bars in a vault.

The Bank of Korea has completed preparations that would allow it to gain exposure to overseas gold-backed ETFs as part of its foreign-reserve diversification, according to the World Gold Council. There is no confirmation that an allocation has been made. Even so, the groundwork matters because central banks have traditionally accumulated gold through the over-the-counter market and held London Good Delivery bars in official vaulting networks.

Samarium’s gold_price table shows bullion rising $49.69, or 1.22%, over the latest 24-hour window, from $4,068.15 at 09:59 UTC on July 21 to $4,117.84 at 08:59 UTC on July 22. Gold traded between $4,052.37 and $4,131.37 during the period. Reuters reported that spot gold reached a two-week high as Middle East tensions, tanker-route risks and uncertainty ahead of the Federal Reserve meeting revived demand despite a firm dollar and US Treasury yields.

The Korean development introduces a different question from the usual debate over whether central banks will buy more tonnes: what form will that exposure take?

The Bank of Korea has held roughly 104 tonnes of gold since 2013. That is only about 3% of its reserves by the World Gold Council’s measure, while official Korean data valued the gold component at about $4.8 billion in June. South Korea has one of the world’s largest foreign-reserve pools, yet its physical gold position has remained static through a decade in which several emerging-market peers accumulated aggressively.

An ETF could lower the operational barrier to changing that allocation. Buying physical bullion requires counterparty arrangements, assaying standards, transport, insurance, custody and decisions over storage jurisdiction. The World Gold Council’s 2026 reserve-manager survey found that London Good Delivery bars remain the preferred physical format and the Bank of England remains the favoured storage location, even as central banks diversify where they keep gold.

A physically backed ETF replaces much of that operational burden with a traded security. It offers daily liquidity, transparent pricing and easier position sizing without requiring the reserve manager to take delivery of bars. That is especially relevant for institutions testing a strategic allocation rather than committing immediately to a large physical purchase programme.

The trade-off is that ETF exposure is not identical to sovereign ownership of allocated bullion. A fund introduces legal, operational and intermediary structures between the reserve manager and the metal. It may also be less useful for a central bank that values gold specifically because it sits outside another country’s financial system. The World Gold Council says only 4% of surveyed central banks reported using gold-backed ETFs, underlining how unusual the Korean approach would be.

The IMF has also cautioned reserve managers against treating gold as a simple substitute for liquid government securities. A July note described gold as a volatile, non-yielding asset whose safe-haven and diversification properties depend on the type of shock. It recommended market-risk haircuts when gold is counted toward effective reserve liquidity and argued that the metal belongs mainly in the investment tranche rather than the immediate-liquidity tranche.

That caution is relevant in South Korea. The Bank of Korea raised its policy rate to 2.75% on July 16, its first increase in more than three years, as energy costs, a weaker won and strong semiconductor-led growth complicated the inflation outlook. A reserve allocation made through an ETF would therefore be less about chasing a haven rally and more about balancing liquidity, currency risk and strategic diversification at a time of renewed domestic tightening.

The broader official-sector backdrop remains supportive. The World Gold Council’s 2026 survey found that 89% of reserve managers expect global central-bank gold holdings to rise over the next year, while a record 45% expect their own institutions to increase holdings. Reported central-bank reserves rose by a net 41 tonnes in May, although buying remained concentrated and Russia and Turkey were net sellers during the period.

For the gold market, the significance of the Korean plan is not the potential size of one order. It is the possibility that ETFs become an acceptable bridge for reserve managers that want gold exposure but are reluctant to expand vaulting, custody and settlement infrastructure. That would broaden the pool of official-sector demand while directing some of it through exchange-traded products rather than directly into the bullion market.

The next catalyst is disclosure. The Bank of Korea does not publish detailed tactical reserve allocations, so investors may not know immediately whether the prepared ETF accounts are used. Any future change in Korea’s reported gold exposure, or confirmation that another central bank has adopted the same route, would show whether this is an isolated operational experiment or the start of a new channel for official gold demand.