UPDATE 2-South Korea buys gold; c.bank purchases set to rise

Thu Aug 2, 2012 5:55am EDT

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* S.Korea raises gold reserves by nearly 30 pct to 70.4
tonnes
    * S.Korea's third gold purchase since last June
    * Stabilising markets in July allow it to pursue purchase

 (Adds comments, background)
    By Christine Kim and Rujun Shen
    SEOUL/SINGAPORE, Aug 2 (Reuters) - South Korea boosted its
gold holdings by nearly a third in July, buying 16 tonnes as
part of the central bank's efforts to diversify its massive
foreign exchange reserves.
    South Korea is Asia's fourth largest economy and its central
bank said on Thursday that it now holds 70.4 tonnes of gold,
after paying $810 million last month for the purchase.
    The increase barely lifted gold prices but supported
expectations that central banks will remain gold's key buyer as
increased volatility in global markets and waning confidence in
the U.S. dollar fuel a global drive to vary foreign reserves
away from the U.S. currency and government debt securities.
    "The markets were stable in July and we judged the
conditions were good for us to make the purchase then," said Lee
Jung, head of the investment strategy team at the Bank of
Korea's reserve investment division.
    Like most central bankers, Lee declined to provide the exact
price per ounce the bank paid for the bullion. Reuters
calculations show the Bank of Korea paid about $1,582 per ounce
on average, slightly lower than the average spot gold price
 of about $1,592 for the month.
    Gold prices gained nearly 1 percent in June, and hovered
near $1,620, down about 16 percent from the record high above
$1,920 hit last September. 
    
    
    CENTRAL BANKS TO BUY MORE GOLD
    The latest purchase was the third by the Korean central bank
since June last year, when it started increasing its reserves
after leaving them unchanged for more than a decade. 
  
    In the last 13 months, South Korea's gold reserves have
grown five-fold but remain only a fraction of China's over 1,000
tonnes and Japan 765 tonnes, according to the World Gold Council
(WGC).
    Central banks bought 80.8 tonnes of gold in the first
quarter, adding to 2011 purchase of more than 450 tonnes, the
WGC said. In recent months, a number of countries including
Russia and Kazakhstan also increased their gold reserves, data
from the International Monetary Fund showed. 
    "We have been of the view that we would increasingly see
more diversification of reserves and investments into gold,"
said Chirag Mehta, gold fund manager at Quantum Mutual Fund in
Mumbai, India. "This trend is likely to continue".
    Gold now accounts for 0.9 percent of the value of South
Korea's total foreign reserves at the end of July, up from 0.7
percent a month earlier, the central bank said. The total book
value of its gold holdings was at $3.0 billion, it added.
    South Korea's foreign reserves of more than $300 billion
ranked the seventh in the world and were equivalent to about 30
percent of its annual gross domestic product.
    The South Korean central bank said it now ranked 40th in the
world in gold holdings at the end of July, up from 43rd in June.

 (Additional reporting by Siddesh Mayenkar in MUMBAI; editing by
Miral Fahmy)
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