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

Thu Aug 2, 2012 5:55am EDT

* 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

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.