Bank of Korea raises gold holdings as central banks boost buying

PUBLISHED : Wednesday, 05 December, 2012, 1:51pm
UPDATED : Wednesday, 05 December, 2012, 1:52pm

The Bank of Korea increased gold reserves 20 per cent last month to diversify investments, boosting holdings for the fourth time since June 2011 and underscoring increased demand for the metal by central banks.

The bank added 14 tonnes in November, bringing the total to 84.4 tonnes, the bank said. By value, holdings gained about US$780 million to US$3.76 billion, equivalent to 1.2 per cent of total reserves, the central bank said.

Central banks from Brazil to Kazakhstan have been expanding their gold reserves at a time when investors increased holdings in exchange-traded products to a record to protect against weaker currencies and the potential for faster inflation. Gold is poised for a 12th straight annual gain.

“Central-bank buying is a solid pillar for gold,” Nick Trevethan, senior commodities strategist at Australia & New Zealand Banking Group Ltd., said by phone from Singapore. “It’s not a story that will go away soon.”

Countries bought 373.9 tonnes in the first nine months of the year, according to the producer-funded World Gold Council, which said in November that full-year additions will probably be at the “bottom end” of a range from 450 to 500 tonnes. Last year, central banks purchased 456 tonnes.

Spot gold traded at US$1,698.95 an ounce at 10:07 a.m. in Singapore, 8.7 per cent higher this year. The price fell to a one-month low of US$1,691.40 an ounce yesterday, falling alongside other commodities amid concern that US lawmakers may fail to avert the so-called fiscal cliff of tax rises and spending cuts.

The Bank of Korea bought 16 tonnes in July, 15 tons in November 2011 a further 25 tonnes over a one-month period from June to July last year. Kazakhstan, Turkey and Russia boosted gold reserves in October, according to data on the International Monetary Fund’s website, joining Brazil, which raised holdings to the highest in more than 11 years.

Gold prices have been supported by so-called official-sector buying, David Gornall, chairman of the London Bullion Market Association, told a conference in Hong Kong last month. China may add more gold to reserves as the metal accounts for a lower share of total holdings compared with the US, he said.

Investors increased holdings in gold-backed ETPs to 2,627.035 tonnes as of Tuesday, data compiled by Bloomberg show. That’s equivalent to the fourth-biggest hoard in the world, exceeded by only the US, Germany and the IMF, according to World Gold Council data.