The Korea Exchange has prepared rules enabling the Bank of Korea to resume physical gold purchases through the KRX Gold Market for foreign exchange reserves, 13 years after its last increase in holdings. The amended rules, covering trading, storage and settlement, are scheduled to take effect on Dec. 14 this year. The central bank plans to buy gold produced by LS MnM and Korea Zinc that would otherwise be exported. Their combined annual output is about 40 to 45 tons, including roughly 4 to 5 tons exported overseas each year. That potential purchase volume is comparable to one month of recent KRX Gold Market trading, which reached 5.05 tons in July and 5.23 tons in August this year. To reduce effects on ordinary market supply and demand, purchases will be conducted only through negotiated block trades, where producers and the Bank of Korea agree on price and quantity in advance. A dedicated purchase account will hold the gold separately, and the acquired bullion cannot be resold through either regular competitive bidding or negotiated block trades. The exchange is also expanding order-entry access to the central bank and commercial banks, while the Bank of Korea will use a gold trading account under the Restriction of Special Taxation Act for settlement. Value-added tax will be exempt for gold withdrawn to build foreign exchange reserves, with the exemption applying to withdrawals made on or after Jan. 1 next year. The Bank of Korea holds 104.4 tons of physical gold after buying an additional 90 tons overseas between 2011 and 2013. It also invested for the first time in an overseas-listed physical gold exchange-traded fund, an investment fund traded on an exchange, in the second quarter of this year. The timing and size of the first domestic purchase will likely depend on producers' export plans, domestic and overseas gold prices, and foreign exchange reserve-management conditions.