Analyst’s raised doubts about the timing of Korea’s gold purchase

South Korea’s purchase of 15 tons of gold is definitely helped gold’s cause but many analyst’s raised doubts about the timing of the purchase.

Analysts, especially in South Korea have come forward to criticise Bank of Korea’s gold purchase at this time as it was advised to buy gold one year ago before the price of the commodity soared.

Many economists in Korea urged the BOK to buy assets such as gold last year when the economy was recovering and there were growing expectations that the nation’s foreign reserve would exceed $300 billion.

At the time, everyone including market observers, lawmakers and government departments advised the central bank to raise its ratio of safe assets in the foreign reserve.

However, the BOK responded, somewhat belatedly, by buying gold at $1,540 per ounce in June and July, and $1,750 per ounce last month. Gold price has already risen more than 20 percent this year.

It hit an historic high of $1,921.15 on Sept. 6 before easing off, but prices are expected to remain high as euro zone jitters continue to drive up demand for safe assets.

Supporters of BOK however said by increasing the gold holdings in the foreign reserve, the nation can diversified portfolios and able to lower the risk from currency volatility at times of uncertainty while maximizing profits.

Having gold holdings shows that a country is equipped with safe assets In times of global uncertainty, they added.

They further said the gold purchase is to possess it for an extensive period and is not fair to simply compare it to the current market value.

South Korea, Asia’s fourth largest economy increased its gold holdings for the second time in just four months to secure safer assets as the world braces for another recession next year.

With the additional purchase, it has 54.4 tons of gold worth $2.17 billion in its foreign reserve as of the end of November, $850 million more than it owned in October.

Furthermore, the bank’s latest buying spree means that gold now accounts for 0.7 percent of its foreign reserve, up from 0.4 percent.

Before the BOK made its first purchase of gold in 13 years in June, when it snapped up a total of 25 tons in two months, the ratio stood at 0.03 percent.

South Korea now ranks 43rd on the World Gold Council’s list of gold holdings by central banks, up from 46th in September.

Central banks around the world have been turning to these while reducing their dollar holdings. From January to November, they bought a total of 350 tons of gold worldwide, with those in emerging countries hoarding aggressively. – Bullion Street

Tags: South Korea gold reserves

Posted by admin on Dec 4 2011. Filed under Gold predictions. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry