Bank of Korea `Under Pressure' to Boost Gold Holdings, Shinhan's Oh Says
The Bank of Korea, which has shunned adding gold to foreign-exchange reserves, is “under pressure” to consider purchases as the global economy worsens and the price advances, Shinhan BNP Paribas Asset Management Co. said.
“Given that central banks in India, Russia and China have bought gold for defense, the Bank of Korea can’t help but feel under pressure to consider purchases for diversification,” said Oh Kyu Chan, Seoul-based head of the overseas fund of funds team at Shinhan BNP, which operates Korea’s biggest gold fund. Kang Sung Kyung, a senior official at the bank’s reserve-management department, had no comment today on plans for gold purchases.
Gold is trading close to a record as signs the global recovery is sputtering prompt investors to seek to preserve their wealth. Gold “offers little value” and “isn’t the trend,” Lee Eung Baek said last year when he was head of the bank’s reserve-management unit. The Bank of Korea’s holdings rank 56th worldwide, according to the World Gold Council.
“The global economy is taking a turn for the worse,” Oh said yesterday in an interview. “The declining values of the dollar and the euro, coupled with an economic downturn, mean the Bank of Korea should find other alternatives to invest. There are not many options,” Oh said, without forecasting gold prices.
Immediate-delivery gold traded today at $1,239.70 an ounce at 12:04 p.m. in Seoul compared with June’s all-time high of $1,265.30, and $1,158.10 on Dec. 7, when the Bank of Korea’s Lee made his comments. The metal has surged 13 percent this year and is on course for a 10th annual gain.
South Korea’s foreign-exchange reserves -- the world’s sixth-largest after China, Japan, Russia, Taiwan and India -- rose to a record $286 billion in July. The Asian nation holds 14.4 metric tons of gold, equivalent to about 0.03 percent of total reserves, according to figures from the Bank of Korea.
The World Gold Council, a producer-funded lobby group, estimates that as of June 2010, South Korea’s gold holdings were the smallest in percentage terms of any of the top 100 holders apart from Hong Kong’s and Canada’s.
Goldman Sachs Group Inc. forecast earlier this month that gold may climb to $1,300 an ounce within six months on renewed investor interest. The metal advanced this week after U.S. housing data reinforced speculation that the world’s largest economy may face a double-dip recession.
Bank Rossii, Russia’s central bank, said on Aug. 20 that it added 500,000 ounces last month, increasing its stockpile to 23.3 million ounces. That followed last year’s purchases by India, Mauritius and Sri Lanka. China, the world’s biggest gold producer, said on Aug. 3 it will relax bullion-trading rules.
The euro has weakened 12 percent against the dollar this year amid Europe’s budget-deficit crisis. Ireland’s long-term sovereign credit rating was cut one step to AA- by Standard & Poor’s this week on concern that the cost to the government of supporting the country’s banks is rising.
“Investors will continue to prefer safe assets in the second half,” Oh said. “The charm of gold and gold-mining shares will increase as a means to protect wealth as growth slows in Europe, the housing woes in the U.S. deepen and uncertainties in the financial markets grow bigger.”
Data this week showed sales of existing U.S. homes fell by a record last month, while purchases of new dwellings slumped to the slowest pace since data began in 1963. The U.S. and Europe are in the “same boat” when facing the risk of a double-dip recession, European Union Economic and Monetary Affairs Commissioner Olli Rehn has said.
Lee, the former head of Bank of Korea’s reserve-management department, said in December: “We follow the big trend. Gold isn’t the trend.” Lee also asked: “Out of more than 200 nations, how many countries have bought bullion?”
Shinhan BNPP Gold Equity Investment Trust, set up in 2007, yielded a return of 11.5 percent this year after a 22.2 percent gain in 2009, according to Oh. The fund, backed by assets of 20.3 billion won ($17 million), places 70 percent of the money in mining shares such as those of Barrick Gold Corp. and Newmont Mining Corp. and invests the rest in physical gold, he said.
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