South Korean central banker disparages gold
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Submitted by cpowell on 08:56PM ET Monday, December 7, 2009. Section: Daily Dispatches But North Koreans probably would have preferred it when their own national currency was grossly devalued last week.
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Bank of Korea Sees 'Illusion' in Gold, No Cash Return
By Kim Kyoungwha
Bloomberg News
Tuesday, December 8, 2009
http://www.bloomberg.com/apps/news?pid=20601080&sid=ag2cRG2_O1Jk
The
Bank of Korea, diversifying foreign-exchange reserves away from a
falling dollar, said that additional gold holdings aren't attractive as
most other central banks aren't buying and the metal offers no cash
returns.
"There's an illusion in gold," Lee Eung Baek, head of
the bank's reserve-management department, said in an interview. "We
follow the big trend. Gold isn't the trend. Out of more than 200
nations, how many countries have bought bullion?"
Gold surged
to a record this month after central banks including India added more
of the metal to reserves, while funds and individuals boosted purchases
to protect their wealth against the weaker dollar and potential
increase in inflation.
"Holding gold as part of reserves makes
sense in terms of diversification, but I don't think many central banks
want to balloon their holdings with it," said Jerry Yoshikoshi, a
senior economist with Sumitomo Mitsui Banking Corp.
Gold for
immediate delivery, on course for a ninth annual gain, touched an
all-time high of $1,226.56 an ounce on Dec. 3, and has gained 32
percent this year as the dollar has dropped 6.9 percent against a
basket of six currencies. The metal traded at $1,161.90 an ounce at
10:43 a.m. in Singapore.
South Korea's reserves -- the world's
sixth-largest after China, Japan, Russia, Taiwan, and India -- rose to
a record $270.9 billion in November as the central bank intervened in
the foreign-exchange market. Central banks intervene by arranging
purchases or sales of foreign exchange.
"Like other central
banks, we have been increasing the types of currencies consisting of
the reserves outside the dollar," Lee said yesterday by phone, without
identifying the currencies. Gold "offers little value," with "no cash
returns," he said.
The Asian nation holds 14.4 metric tons of
gold, equivalent to 0.03 percent of total reserves, according to
figures from the Bank of Korea. That compares with the average of 10.2
percent held by central banks worldwide, according to data from INTL
Commodities DMCC in October.
The dollar has weakened this year
as the Federal Reserve kept benchmark interest rates near zero percent
since December 2008 to revive lending after the worst financial crisis
since World War II. Record U.S. government borrowing has also driven
investor concern that the currency may be debased.
"Since
India and Russia with large reserves bought gold, there's speculation
that Korea might buy it too," Lee said. "But we are not classified in
the same category. There's a slim chance that we will buy gold" from
the IMF, he said.
Since the end of September, India,
Mauritius, and Sri Lanka bought more than half of the 403.3 tons of
gold that the International Monetary Fund plans to sell to bolster its
balance sheet. Bank Rossii, Russia's central bank, also increased its
gold holdings by 2.6 percent in October.
"The volatility on
gold is too big," Lee said. "And once gold is purchased, it's just kept
in a safe and is not put up for sale even if prices rise."
Many
central banks "remember bullion's ultra-bearish trend in the '90s,"
Sumitomo Mitsui's Yoshikoshi said. Gold tumbled as low as $251.95 an
ounce during the decade, in August 1999. "The recent rally is, for me,
too much in an environment where aggravated inflation is hardly
expected in the coming years," he said.
South Korea has
reduced its holdings of Treasuries to $38.8 billion at the end of
September from as high as $72.8 billion in February 2006, according to
U.S. Department of Treasury data. This year, its holdings climbed $7.5
billion as the nation's reserves increased.
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