South Korean central bank buys more gold in February

South Korea's central bank said Wednesday it increased its holding of gold in three months in February in a bid to diversify the portfolio of its foreign exchange reserves worth more than US$320 billion. The Bank of Korea (BOK) said it bought 20 tons of gold, raising the central bank's gold holdings to 104.4 tons valued at US$4.79 billion as of end-February. The move marked the BOK's fifth purchase of the yellow metal since July 2011 when the bank bought gold for the first time in 13 years. It also bought gold in November 2011, July and November 2012. "As the gold purchase aims to diversify the foreign exchange portfolio over the long haul, gold prices' short-term volatility have not been considered," said Lee Jung, the head of the BOK's investment strategy team. Lee declined to comment on the purchasing prices and future buying plans, citing the possible impact his statements might have on the market. The BOK's move came as the economic slowdown and quantitative easing by advanced economies make gold attractive as a safe asset. But its volatile prices are seen as an investment risk, indicated by the recent trend that gold prices fell around 12 percent as of end-February from their record high of near $1,800 per ounce in October 2012. The BOK estimated that its additional purchase would put South Korea at the 34th spot in the world in terms of gold holdings, up from 36th at the end of 2012. The central bank has been making efforts to diversify its foreign reserves by reducing the weight of its U.S. dollar-denominated assets. Gold bullion accounted for 1.5 percent of the total reserves as of end-February, up from 1.1 percent the previous month. Despite the gold purchase, South Korea's foreign reserves declined last month from a record high of $328.91 billion in January, the first fall since May 2012. The foreign reserves stood at $327.4 billion as of the end of February, down $1.51 billion from the previous month as a strong U.S. dollar drove down the conversion value of non-dollar assets, the BOK said. Foreign reserves consist of securities and deposits denominated in overseas currencies, along with International Monetary Fund reserve positions, special drawing rights and gold bullion. The euro fell 3.2 percent to the dollar last month while the British pound depreciated 4 percent per the greenback, it added. As of the end of January, South Korea was the world's seventh-largest holder of foreign exchange reserves.