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Korean central bank may buy gold to diversify reserves
Source: BI-ME , Author: BI-ME staff
Posted: Sun July 5, 2009 5:37 pm Back Email Print RSS Feeds INTERNATIONAL. The bank of Korea is expected to buy gold as part of a review of its foreign exchange reserves, local media reports said on Saturday, quoting an unamed official.

“The bank has begun to set up a plan to manage foreign exchange reserves for next year. It has also closely watched central banks in other nations and trends in the global gold market. Given the changing global financial environment, the bank's management plan is critical,” a Bank of Korea official said.

Experts said the comment implies that the bank plans to buy gold soon. Korea has the world’s sixth largest foreign exchange reserves but ranks 56th in terms of gold holdings.

The world’s central banks, including China, have been buying the yellow metal on concerns about a weakening US Dollar.

Chinese officials have bluntly expressed concern about US fiscal and monetary policies that appear to contemplate inflation and devaluation as a way out of the debt crisis, or at least accept it with weary resignation.

“We have made no decision on the purchase of gold and cannot say if we have considered it," the Bank of Korea official said. The plan to manage foreign exchange reserves for 2010 is expected to be ready by November.

Local analysts forecast that the bank will have no choice but to buy gold soon.

Chang Min, the head of the Korea Institute of Finance’s macroeconomic research division who worked at the central bank until late last year, said, “The central bank has long considered several alternatives such as buying gold to diversify its foreign exchange reserve portfolio, which is heavily focused on dollars. It needs to secure more gold to diversify its investment.”

Kwon Sun-woo, the head of macroeconomic research at Samsung Economic Research Institute, said, “The Bank of Korea`s gold reserves are far less than enough. It should have bought more gold. Given the instability of the greenback, it needs to buy more gold.”

As of late May this year, the Bank of Korea had 14.3 tons of gold, far less its counterparts in the United States (8,134 tons); Germany (3,413); China (1,054); Japan (765); Russia (537); Taiwan (424); the Philippines (154); Singapore (127); Thailand (84); Indonesia (73); and Malaysia (36 tons).

Gold represents 0.19% by market price and 0.03% by book value of the bank's foreign exchange reserves.