South Korea buys more gold amid speculation on currency market intervention
By Christine Kim
Wednesday, December 5, 2012
SEOUL, South Korea -- South Korea's central bank said on Wednesday it bought 14 tonnes of gold in November using its foreign reserves in order to spread its portfolio risks, while releasing data showing total reserves rose after talk of market intervention.
The Bank of Korea bought the gold for $780 million, the fourth purchase in about 1 1/2 years, lifting the proportion of gold in its total foreign reserves to 1.2 percent from the previous 0.9 percent, it said in a statement.
"Gold is a physical, safe asset and allows" the country "to deal with changes in the international financial environment more effectively," it said in a statement, without providing more details on the purchase.
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The Bank of Korea now holds 84.4 tonnes of gold, valued at $3.76 billion in terms of purchase prices, up nearly six-fold from 14.4 tonnes before June last year.
The Bank of Korea made its first gold purchase in more than a decade between June and July last year, joining some central banks in diversifying their increasing foreign reserves away from the U.S. dollar and low-yielding government bonds.
Official-sector buying has become a key factor supporting gold demand and prices in recent years.
South Korea's gold buying "points to stronger support for gold prices from central banks," said Philip Klapwijk, global head of metals analytics at Thomson Reuters GFMS, a
metals consultancy. "If private-sector investment falters and prices dip, central banks' buying supports prices at higher levels than if this demand were not present. It is a substantial additional source of demand for gold bullion."
Central banks around the world bought a total of 351.8 tonnes of gold in the first nine months of 2013, up 2 percent from a year earlier, data from the World Gold Council showed.
In comparison, private-sector gold investment demand during the period dropped nearly 8 percent on the year to 1,139.3 tonnes, the data also showed.
Spot gold traded just below $1,700 an ounce on Wednesday, up more than 8 percent so far this year.
The Bank of Korea said it now expected its ranking among central banks around the world in terms of gold holdings to rise to 36th from 40th.
Meanwhile, the central bank said foreign reserves rose by $2.6 billion last month to a record $326.09 billion, extending its record-breaking streak to a fourth consecutive month. It attributed the increase to investment gains but the data came after reports by traders of dollar-buying intervention by South Korean authorities during the month to curb the won's rapid appreciation.
On Nov. 22 alone, currency traders estimated authorities bought up to $1 billion in the local currency market to temper a stronger won, which hurts the competitiveness of South Korean exporters.
Central bank officials declined to comment on the talk of intervention.
South Korea, which had the world's seventh-largest foreign exchange reserves as of the end of October, held 91.7 percent of its reserves in the form of securities.
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