Sharp Increase in Central Bank Gold Reserves – South Korea Up 17-Fold & Thailand 15.5% in 2 Months
Gold reached new record nominal highs in euros and Canadian dollars yesterday at EUR 1,149.60/oz and CAD 1,566.48/oz yesterday and remains close to these record highs today, and close to record highs in most fiat currencies.
Cross Currency Rates
European indices are lower after Asian indices fell (Nikkei -1.2%, Sensex -1.1%, Shanghai -0.72%, Hang Seng -1.07, STI -1.25% and the South Korea's Kospi was the worst performer falling 2.35%).
The Italian MIB is down another 0.9% and jitters abound about Italian banks and banking sector.
Gold in Euros - 30-Day (Tick)
Spanish and particularly Italian bonds are under pressure today with the Spanish 10-year rising to 6.37% and the Italian 10-year rising to 6.21%. Spain and Italy's debt markets are beginning to look like Portugal and Ireland's prior to their bond yields surged to over 10%.
Gold in GBP- 30-Day (Tick)
Further confirmation in the continuing stealth accumulation of bullion by central banks came overnight with confirmation that South Korea's central bank bought 25 tonnes of gold over the past two months. The gold is worth $1.24 billion and resulted in a 17-fold increase in their gold reserves.
Thailand's gold reserves rose by 15.5% in the two months and rose to about 4.07 million ounces in June, from about 3.523 million ounces in May, according to figures on the Bank of Thailand's website accessed by Bloomberg this morning.
South Korea is the world's seventh-biggest foreign-exchange reserve holder and 64% of its reserves are in U.S. dollars. The bank said that it also holds euros and other assets and the move was about achieving diversification.
The BOK's reserves, stored in London in the vaults of the Bank of England, increased 25 tonnes to 39.4 tonnes (from 14.4 tonnes) but remain meager when compared to the size of their foreign exchange reserves.
BOK's gold holdings, at today's market prices, account for 0.7% of its reserves, up from 0.2% prior to the purchase.
The BOK reserves were at a record high of $311.03 billion at the end of July which puts this $1.25 billion gold purchase in perspective.
Their gold reserves and those of other Asian central banks, particularly the People's Bank of China, remain meager when compared to those of western central banks and the U.S.
Earlier this year, Thailand, whose gold holdings account for only 2.9 percent of reserves, bought 9.3 tonnes of gold. Russia purchased 41.8 tonnes and Mexico bought 99.2 tonnes.
China is the world's sixth largest gold holder and the biggest among Asian banks with 1,054.1 tonnes, equivalent to just 1.6% of their massive currency reserves.
According to the World Gold Council, governments hold an average of 10 per cent of foreign exchange reserves in gold. Larger economies such as the US, France and Germany hold more than 50 per cent.
"As a real safe asset, gold helps us to cope effectively with changes in international financial market," said Jaehyun Joo of the Bank of Korea.
"We expect that gold would serve as a safety net for official foreign reserve and enhance the stability of the Bank Of Korea's foreign reserve management," Mr Joo added.
Mr Joo's comments reflect the mindset of people and central bankers in Asia who realize gold's store of value importance and are increasingly concerned about the euro, the dollar and the global financial and monetary system.
The "Asian put" continues to place a very stable floor under the gold market and means that gold is not seeing any meaningful correction.
This is likely to continue for the foreseeable future and means that investors would be advised to allocate to gold sooner rather than later as a meaningful price correction is unlikely.
Some weakness in gold may be seen if we experience another bout of misplaced 'market euphoria' and risk appetite once the debt deal is fully completed. However, this will likely be more short term weakness as the medium and long term fundamentals remain sound.
Smart money and official demand for gold remains robust as a very fragile global economic recovery, stubbornly high inflation in many countries and sovereign debt and contagion risks lead to diversification into gold.