Net central bank gold purchases have risen from an average of 473 tonnes a year between 2010 and 2021 to nearly 1,000 tonnes over the past four years. While emerging-market institutions have led the build-up, South Korea has outlined a new approach: the Bank of Korea has set a framework to buy domestically produced gold from local miners at international spot prices, and has also begun purchasing gold ETF shares. It last added to reserves 13 years ago and currently holds just over 104 tonnes, about 1.1% of total reserves, with Korea Exchange and the Korea Securities Depository set to facilitate trades and LS MnM as well as Korea Zinc supplying eligible metal.
The miners produce 4 to 5 tonnes annually, with purchases to be made when market and reserve-management conditions allow, and settlement in won is designed to avoid drawing on foreign exchange reserves; storage is expected to be in South Korea, while most existing holdings sit in London. The country’s earlier buying cycle saw gold peak at $1,920 an ounce in September 2011 before falling to $1,180 in 2013, a 38% decline, with unrealised losses reaching 1.8 trillion won by 2015; 90 tonnes bought then are now valued about $7bn above purchase cost. Globally, central banks added 863 tonnes last year, down 21% year-on-year, after a 2022 record of 1,136 tonnes dating back to 1950, and the ECB said last month that gold has overtaken US Treasuries as the top reserve asset.
Trading Implications Of Central Bank Gold Demand
We recommend that derivative traders heavily favor long gold positions in the coming weeks following the Bank of Korea’s pivotal decision to resume gold purchasing for the first time in 13 years. This strategic shift by a major developed economy, which plans to buy domestic supply and gold ETFs, signals a structural floor for global gold prices. As physical supply gets pulled directly from local refiners, the global market will face tighter liquid supply, creating a bullish environment for derivative instruments.
We must look at the sheer scale of global central bank demand, which topped 1,037 tonnes in 2023 and stayed near historic levels through 2024 and 2025. This relentless institutional buying has helped push gold prices to record heights, consistently trading above $2,400 an ounce recently. With major institutions actively replacing U.S. Treasuries with gold as their primary reserve asset, structural upward pressure is virtually guaranteed.
Options Strategies And Risk Management
For the upcoming weeks, we suggest utilizing bull call spreads on gold futures or GLD options to capture the upside while managing premium costs. Implied volatility may spike as geopolitical tensions persist, making defined-risk strategies highly attractive. Traders should target expiration dates three to six months out to allow this institutional buying pressure to fully manifest in the market.
Even if short-term pullbacks occur, historical data shows that long-term central bank accumulation protects against extended downside risk. We advise against shorting gold on minor technical breakdowns, as any dip is highly likely to be aggressively bought by reserve managers looking for alternatives to the U.S. dollar. Instead, traders should treat any short-term weakness as an opportunity to buy call options at cheaper strikes.
