As South Korea Sets Off To Formally Expand Its Gold Holdings, Is China Far Behind?

Tyler Durden's picture

Today's most important piece of news for holders of precious metals comes from the far East, where Kim Choong-soo, governor of South Korea’s central bank, told a parliamentary committee on Monday, that the country: "needs to give careful consideration to the matter of increasing gold volumes in the foreign reserves.” In other words, as the FT summarizes, "South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering expanding its small holdings of gold to diversify its dollar-heavy portfolio." Last week, a mere unsubstantiated whisper that China was doing the same sent gold $10 higher. So with the regional game theory framework changing, as more countries rush into the yellow metal, will China finally be forced to come out of its shell of gold shyness and officially start accumulating, sending gold soaring?

More from the FT:

Such a move would have a powerfully bullish effect on the gold market. With just 14 tonnes of gold – or 0.2 per cent of $290bn reserves – Seoul is one of the smallest holders of gold among large economies. The world average is about 10 per cent, according to the World Gold Council, while countries such as the US, Germany and France hold well over 50 per cent of their reserves in gold.

That trend is one of the most important changes in the gold market in recent history, and has helped drive the metal’s rally to a series of fresh highs. On Thursday it touched $1,387.10 a troy ounce, an all-time nominal record.

South Korea’s central bank stressed any moves would have to be “cautious” and “prudent” because of the high gold price . One person familiar with the Bank of Korea’s stance on the metal said it was “receptive to the idea” of buying gold, but stressed that there remained “differences of views” within the central bank.

It appears that South Korea's traditional repository of FX reserves have been UST Bills, which however, as we demonstrated a few weeks ago, have lost value in FX adjusted terms even when taking into account the price appreciation. Furthermore, with the 2 Year trading at 0.3%-ish, there is little room for capital upside, and little yield to be extracted in the future.

“The bank is likely to remain hesitant, waiting for gold prices to come down, which is unlikely,” he said. “Although gold prices have risen sharply in recent months, the upward trend is likely to continue for now as the dollar is likely to remain weak, with Ben Bernanke talking about additional easing measures and central banks worldwide likely to keep buying gold amid ultra-low interest rates.”

Another issue for central banks looking to diversify into gold is the size of the market. Relative to the size of foreign exchange reserves, the gold market is tiny, meaning any large purchases could drive up the price. An increase in Seoul’s gold holdings of just a few percentage points would translate into 100-200 tonnes of purchases – a significant additional source of demand compared to annual production from mines of just 2,500 tonnes.

Not only that, but the ratio of short paper bets hedging long physical exposure as done by such market manipulating luminaries as JPM, means that should the price take off in a parabolic blow off like that seen in Apple recently, then the short covering capitulation, once set off post margin call thresholds, will shoot the price of gold into the stratosphere. Of course, with JPM being the FRBNY's banker of choice, one wonder how far Bill Dudley will go to give Jamie Dimon preferential terms on overnight liquidity before the bank is forced to cover its billions in paper shorts. Which of course may be the easiest way to pull a Soros, and take the US central bank on. After all, even the Fed has a breaking point.

h/t Papa Swamp

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septicshock's picture

GOLD Bitchezzzz!!     Had to be said.

Michael Victory's picture

In case you missed it..

This month's interview was with another Von Mises Austrian, Robert Murphy.
The primary topic of our conversation: Sound Money & AU

Link to the interview:


midtowng's picture

It wasn't long ago that the South Korean CB was talking trash about gold. The chairman was basically laughing at the notion that they would ever be buying it.

How times have changed.

cossack55's picture

Nothing better than eating Ramon and Kimchee with 24K chopsticks.

Temporalist's picture

Ahh the memories...  I still remember the videotape display cover for that movie when 7-11 used to rent movies.

Cognitive Dissonance's picture

Video "tape"? What's a video "tape"? :>)

I was certain many here on ZH would understand the reference. But anytime I use a reference that is more than 10 years old, I always include a link so others may enjoy, or at least understand, the genesis.

Gotta help the younger generation understand us old(er) farts, otherwise they'll warehouse us in the nursing homes or start practicing "mercy" killings. :>)

When you don't "have" value in the eye of the beholder, you'd better start creating some fast.

GoinFawr's picture

Gotta help the younger generation understand us old(er) farts, otherwise they'll warehouse us in the nursing homes or start practicing "mercy" killings. :>)

Logan's Run style?


RockyRacoon's picture

CD, while walking thru a thrift store with my daughter some 15 years ago, she picked up an item and asked me what it was.   It was a Led Zep 8-track tape.  I had a fun time telling her what it was.  My buddies and I listened to that an other fine musical interludes  while I was in the Air Force, driving around in one of the guy's camouflaged VW bus.  There was some alcohol involved.

66Sexy's picture

sabbath; we sold our soul for rock n roll.... 'Warning' interrupted in the middle of tony iommi's epic guitar solo... fade out.. fade in.... track 3 to track 4. they called 'em 8 track's but they had really 4 tracks.

DarkMath's picture

Oh man, CD, I laughed my ass off on this one. You get a gold star for making my morning.

Cognitive Dissonance's picture

I love that I can showcase my sick mind on ZH. I'm always amazed what pops into the brain whenever I read stray words or phrases. It speaks to some dark place I haven't fully explored.......yet. 

cossack55's picture

Thanks for the assist, Ps.  This is what happens when the coffee is not yet perked.  Or maybe I was thinking about the Spanish banks while typing.  Hmmmm.

etienno's picture

"A mere unsubstantiated whisper", do you mean a ZH rumor creation ?

bigdumbnugly's picture

so that's why so many people have been eyeing my gold tooth in a totally different way of late.

i don't even trust my dentist's intentions anymore...

cat2's picture

When is gold going to pull back?  I need to add more...

Cognitive Dissonance's picture

Don't wait for a pullback. If you think Gold is going to double in the next 5 years (Do you?) what happens if it doesn't pull back until it hits $1,500 or $1,600, then doesn't come back to here and now? Or what happens if you don't have the nerve to buy it when it does pull back because you think it might pull back further, then it reverses and takes off and you missed the boat?

You like Gold, buy Gold when you can. I'm assuming you understand that you want to take physical possession. You DO want physical possession, right?

Jake Green's picture

I've been buying gold coins from my local coin dealer; but he charges like an extra hundred bucks over spot. I like that the tranactions are anonymous, but do you think that fee is too steep?

Cognitive Dissonance's picture

Not when the Internet stores are charging $50 to $80 (or more) and they record your transaction.

You'll think the premium was cheap once it goes to $200. 

DosZap's picture

Your getting SCREWED, do you feel it?.If being Anon is worth a 100% markup, ok.

He's charging you DOUBLE, if your stateside.

tmosley's picture

I hate to tell you, but gold hasn't been $100 since the 70's.

These days, $100 is more like an 8% markup.  This is worth it for Eagles, Maples, Philharmonics, and certain other specialty bullion products, but not for Kug's, rounds, or bars.  If you are paying that big of a markup, you should shop around.  If everyone else is charging the same thing, then you're probably good.  If you can get it for less, great.  The best you are likely to get is a $20 discount IF you are buying the name brands mentioned above.

That said, I might be behind the times, as I haven't been buying much since the latest run-up.  Could just as easily be that premiums have just plain gone up, which makes sense, since APMEX appears to be running out of a lot of products.

DosZap's picture


you misunderstood my figure.

If he is paying a $100.00 over spot for Mapes,Phils, he's paying a near 100% markup  more than he has to.

Why pay a $100.00, when you can get the same thing for $50.00?.



tmosley's picture

Ok, I was a bit confused there.  Makes more sense now.

Gold Eagles are a $64 premium to spot on APMEX right now.  $36/oz of gold is not a bad price to pay for anonymity, and certainly isn't a rip off.

Cognitive Dissonance's picture

2.6% above and beyond the spot price (plus the "normal" Internet premium) to remain hidden in the shadows. A small price to pay.

DosZap's picture

24k Mapes are $53.00,screw Eagles @1-10...........$47.00/oz,is a lot to some folks if you  buy 10 at a pop,(for DCA) that's $530.00.

Most of the world prefers 24k anyway.

Plus, their is NO anonymity,if you ever sell it your tagged.

Black Mkt, barter,fine, if we get to that point we're screwed anyway.


Cognitive Dissonance's picture

South Korea thinks they should own more of the barbarous relic? Heavens to DMZ, why would any central bank wish to do that?

They can't eat it, it costs "money" to store, it doesn't earn interest. Silly rabbit, why would they want something that's been around for thousands of years when I have some freshly printed greenbacks for them? In with the new, out with the old.

Get with it dudes. :>)

<sarcasm off>

Shameful's picture

Now that you mention the DMZ, how do you think policy makers in the US will respond?  After all the US still has a decent number of troops there and we are nominally allies.  It's clear they would have to lighten the UST load to get gold, wonder how much of the US being there factors into their calculus.

Cognitive Dissonance's picture

I think South Korea is so far behind the eight ball...

With just 14 tonnes of gold – or 0.2 per cent of $290bn reserves – Seoul is one of the smallest holders of gold among large economies.

...with regard to owning Gold as a significant portion of their foreign currency reserves precisely because the US responded to SK back room feelers and discussions. That's why in my view this is so significant.

Anyone else?

bigdumbnugly's picture

hell, even johnny bravo probably owns 14 tons of gold.  S.K.'s got a whole lotta catching up to do.

Cognitive Dissonance's picture

The only Gold Johnny Bravo has is the minuscule amount he's able to lick off his master's ring.

Johrny Bravo's picture

I certainly didn't find any kissing my master's ass!

Goled to $900 bitchez!

Cognitive Dissonance's picture

I suspect you are correct, that the genuine imitation (Johrny Bravo) has been kissing something other than the master's ring. :>) 

I hear they have anal rings.

bigdumbnugly's picture

yep, they do.  they're known in the biz as bullseyes.

Cognitive Dissonance's picture

God help me.

How do I go about un-knowing this little factoid. It was bad enough suspecting there was such a thing, but to know the actual term is just too much.


bigdumbnugly's picture



truthfully, cd, i just made that up.  but maybe in certain quarters it will catch on...?...

Cognitive Dissonance's picture


Doesn't matter, the damage has been done. It has been burned into my psyche and I will die with that word in my brain. :>)

And I suspect that it does exist somewhere out there and that there is a name for it. Always bet on man's moral/sexual depravity and insanity. A look at any large city's police log will confirm my thesis. :>) 

Hulk's picture

It is very nice to be a genuine imitation CD!

Goled to infinity and beyond Biatchies!

Council of Economic Terrorists's picture

The bigger issue is China.  In order for the U.S. to win the race to the bottom in currency, China has to quit "manipulating their currency" as Timmah and Obama whine about all the time.  However, China doesn't manipulate it rather it is pegged to the dollar. That's why the administration wants it to float.  The Chinese will only do this if we bomb their military bases and a city where there aren't too many American Corporations (a.k.a. getting the Saddam Hussein treatment).

In related news, on HuffPo there was a write up about creative ways to create jobs.  Number 10 was rapid currency devaluation.  There was a PhD economist spewing that if the currency is debased fast enough it will balance out our exports and imports.  In theory it would work, but in my opinion taking that route would take years for the "jobs to come back" as this would take American companies spending lots of money closing plants overseas and starting some here.  However, he also forgot to mention: 1) China pegging their currency to the dollar, so no matter what we lose this battle. 2) Rapid currency debasement without immediate job creation and with sticky wages = hyperinflation



Temporalist's picture

"Bring us some fresh wine!  The freshest you've got"  "He doesn't realize he's dealing with sophisticated people here."

-Navin Johnson

66Sexy's picture

gold is critical to the legitimization of any new coglomorate of currencies.


think about it; which would you prefer in trade.. a currency with even a quasi gold backing, or a fiat government controlled currency

Conrad Murray's picture

Taekwondo the Fed, hang the bankers! 


Monday's music, Steak and Shake:


tmosley's picture

This is big news.  Things are set to accelerate in an uncontrolled and extremely rapid manner.  With news like this, I would suggest that anyone trading in paper metals needs to close out their positions and move all in to physical metal (although short GLD and SLV/long physical gold and silver remains a good bet on the failure of paper vehicles).  

Anyone caught without a physical position when these dominoes start falling is going to be sorry.  There is absolutely no reason to think that the coming event won't occur in foreign markets overnight, meaning you go to bed with gold and silver down, and wake up with both having risen ten fold or more.

I would maintain a position of 100% physical metals (I am overweight silver, which won't change until the GS ratio hits 1:10--this is speculative, safety is 50:50 in dollar terms)) for the next six months before a reassessment, or wait for the event, whichever comes first.  If there is a significant liberalization of some overseas market in the next six months, that is likely where I would direct some of the gold and silver should I liquidate it.  DON'T TOUCH FIAT CURRENCIES UNLESS YOU HAVE TO FOR TRANSACTION PURPOSES.  As far as I am concerned, they are ALL toxic, and will remain so until the PM event has passed (said event will likely weed out the weak/poorly managed currencies--any left standing several months later will likely survive for at least a few more years).

Shameful's picture

Wise words.  It's what I'm doing, but then I have 0 faith in our government, or really most governments.  Not as into silver as you, I like it but I tried to keep my silver holdings to what I can realistically haul around if I need to carry it in a hurry :)  Still not a bad idea to have physical FRNs though.  figure if/when the balloon goes up people will be accepting them for a little while and would be nice to use them to get what you need.

tmosley's picture

To use an Old West metaphor, I would say that owning gold is like owning a farm in Texas in late 1800's.  You could sell that farm for an increasing amount of value, and it certainly preserved your wealth.  Buying silver at this point is like buying a farm where the railroad is going to go.  It will certainly retain its value unless something changes in a major way, but once the train comes through town, you'll own land that is worth many, many times what you paid for it, and it will be very sudden.

I sympathize with moving the silver.  If you have a significant amount, it is very hard to move.  I had to move my hoard last year, and let me tell you, it was NOT fun.

Pegasus Muse's picture

I'll be happy to give you a hand next time you need to move the stuff.  :-)