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Your daily guide to the Transitional Economy as the FIRE Economy recedes and the TECI Economy takes over

Tuesday, October 19, 2010

Central banks continue to buy gold to hedge currency risk

The entry of the world's major central banks into the gold market marks a new stage in the development of the gold market that confirms our original reasons for entering the market in 2001: central banks are holding or buying gold to hedge the potential breakdown of the global monetary system. We bought it in 2001 for the same reason. The risk is of a disorderly transition to a new system.

By Christian Oliver and Song Jung-a in Seoul and Jack Farchy in London
Published: October 18 2010 10:24

South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering buying gold to diversify its dollar-heavy portfolio, the country’s central bank said, adding it would be cautious in making any final decision.

Even a small realignment of South Korea’s reserves would have a powerfully bullish effect on the gold market. With just 14 tonnes of gold – or 0.2 per cent of its $290bn reserves – Seoul is one of the smallest holders of gold among large economies. The world average is 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. read more...

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