The Bank of Korea (BOK) is experiencing snowballing losses in the value of its gold holdings, as the price of the precious metal continues to plummet on global markets

2013-12-23 15:27

By Kim Rahn

BOK suffers losses from gold price fall

The Bank of Korea (BOK) is experiencing snowballing losses in the value of its gold holdings, as the price of the precious metal continues to plummet on global markets.
There is criticism that the central bank’s gold purchase strategy, promoted under current Governor Kim Choong-soo failed to read market trends, as the price has been declining since it expanded its holdings.
According to the BOK, Monday, it held 14.4 tons of gold up to 2011. The bank bought an additional 90 tons ― at a cost of $4.79 billion ― from June 2011 through this February, for a total of 104.4 tons.
However, the price of gold, which had been increasing for a decade in the 2000s, has been declining since 2011.
According to the New York Mercantile Exchange, the price of gold was around $1,900 per ounce in September 2011 but dropped below $1,200, Friday.
The falling trend was especially sharp this year, mainly due to an optimistic outlook for a global economic recovery, dropping almost 30 percent, the largest since 1984. Market watchers say the trend may continue next year.
At the current market price, the value of the BOK’s gold holdings is now some $3.45 billion, a $1.34 billion loss to date.
A BOK official said it is embarrassing that the price of gold is falling but it does not mean the buying decision was wrong.
“It would have been better if we had bought the gold at a lower price. But regarding gold, we are maintaining a long term strategy, and long here doesn’t mean a couple of decades but a century,” he said.
The official said the 14.4 tons of gold holdings was small compared to other countries’ stock. The BOK, which used to focus on financial assets rather than real assets, began to buy gold in 2011. “We needed to diversify the portfolio of our foreign reserves,” he said.
He did not answer directly as to whether the bank will buy more gold, but hinted that it could do so in the long term.
“Considering Korea’s economic and political status, its gold holdings of 104.4 tons are still small. The United States, for example, is holding 8,000 tons,” he said.
The official also said the gold accounts for only 1.3 percent of the bank’s total foreign reserves. “In the whole picture of foreign reserve management, we see profits in other types of reserves such as bonds.”
During a parliamentary inspection of the government in October, governor Kim also refuted criticism from lawmakers about the decline in the price of gold by saying, “We buy gold not for speculation but for future use in case of emergencies. The amount of the BOK’s gold purchase is small compared to its total foreign reserves and the size of the nation’s economy.”