* Gold price edges up after Bank of Korea's $1.24 bln
* Bank of Korea says purchase lifts gold holding to 39.4 T
* South Korea gold holding small vs China's 1,054.1 T
(Adds comment from Bank of Korea)
By Yoo Choonsik and Kim Yeonhee
SEOUL, Aug 2 South Korea spent more than a
billion dollars in its first gold purchase in more than a
decade, as uncertainty about global growth and sovereign debt
push central banks around the world to diversify foreign
A brittle global economic recovery and precarious debt
conditions in the United States and Europe have boosted the
safe-haven appeal of gold, lifting bullion to a record high on
The Bank of Korea said in a statement on Tuesday it bought
25 tonnes of gold over the past two months, raising its gold
holding to 39.4 tonnes, news that helped lift spot gold by
around $6 from late Monday.
Reserve currencies, like the dollar and euro, "have been
losing their clout since the recent global financial crisis
partly due to abnormal monetary policy adopted in many countries
and fiscal deficit problems," said an official at the central
bank who declined to be named because he was not authorised to
speak to the media.
Data on 27 major economies from the Bank for International
Settlements shows the dollar's inflation-adjusted real effective
value has dropped by 10 percent in the past two years and the
euro has lost 6 percent, reflecting the sharp increase in the
amount of each currency in circulation.
South Korea's gold holdings remain far smaller than that of
other Asian central banks, with China, which ranks sixth
globally, the biggest with 1,054.1 tonnes by the end of May,
according to World Gold Council data.
Japan, No. 9 globally, has 765.2 tonnes of gold, or 3.3
percent of its total reserves, and 11th-ranked India has 557.7
tonnes, or 8.7 percent.
"South Korea's central bank seems a little late to the
party, but gold investors should continue to expect price
support as central bankers around the world are underinvested in
the yellow stuff," said Sean McGillivray, head of asset
allocation at Great Pacific Wealth Management.
"Investors and central bankers are looking to protect
purchasing power, diversifying into the currency of last resort,
With prices hovering near historic highs, the central bank
of Asia's fourth-largest economy said gold looked less lucrative
as an investment, but it was the right time to buy the precious
metal because its foreign reserves had risen above $300 billion.
The news helped boost gold prices, with spot up 0.4
percent at $1,623.94 an ounce by 0528 GMT. Gold hit a record
high of $1,632.30 on Friday.
"Any news about central banks buying gold reassures
consumers and other major players who are already looking at
gold as an investment," said Jeffrey Pritchard, analyst at
California-based commodities futures and options brokerage
Altavest Worldwide Trading.
CONDITIONS RIPE FOR GOLD PURCHASE
The Bank of Korea said its latest gold purchase was valued
at $1.24 billion. It did not say whether it had bought gold
bullion or funds, or whether it plans to buy more gold.
The purchase comes weeks before the central bank is due to
face an annual parliamentary audit, expected in September, and
after several South Korean lawmakers from both the ruling and
opposition parties have repeatedly called for it to boost
holdings of gold to diversify reserves.
At 25 tonnes of gold, equivalent to 803,769 ounces, the
average price paid comes to around $1,543 an ounce, based on
A BoK official said it was the bank's first gold purchase
since at least the 1997-1998 Asian financial crisis when
patriotic Koreans collected the precious metal as part of a
campaign to boost the country's foreign reserves, when it was on
the verge of a sovereign default.
"The country had too small an amount of foreign reserves to
diversify into gold before 2004 and was not able to buy gold
between 2005 and 2007 due to concerns about the central bank's
annual losses," the Bank of Korea said.
"Now that our total reserves topped $300 billion and foreign
exchange markets stabilised, we judged that conditions were ripe
for us to increase gold holding."
The increased gold holding would put South Korea in 45th
position in the World Gold Council's list of central banks
holding gold, up from 56th previously, the Bank of Korea said.
The United States has the biggest gold holding in its
reserves, at 8,133.5 tonnes, or 74.7 percent of total reserves,
according to the WGC's July report. Germany is a distant second
with 3,401 tonnes, or 71.7 percent of its total reserves.
The Bank of Korea declined to disclose the purchase price
but said it had entrusted all of its gold holding to the Bank of
England for possible use in gold lending and other related
Including the gold, South Korea's foreign reserves rose by
$6.55 billion in July to $311.03 billion, equivalent to about 30
percent of the country's annual gross domestic product of just
more than $1 trillion in 2010.
South Korea's foreign reserves ranked seventh in the world
as of the end of June, the central bank said.
(Additional reporting by Rujun Shen in Singapore and Frank Tang
in New York; Writing by Manolo Serapio Jr; Editing by Michael