The central bank of South Korea – which holds the world's fifth-largest store of foreign exchange reserves – may buy gold bullion to hedge its portfolio, which consists mostly of U.S. dollars, reports the Financial Times.
The bank hasn't made a firm commitment, though – if it does choose to buy bullion, it will certainly create a bullish surge on the markets.
"We need to give careful consideration to the matter of increasing gold volumes in the foreign reserves," Kim Choong-soo, the governor of the nation's central bank, told parliament today in Seoul.
Gold traded relatively flat today, with December gold futures sliding 60 cents to $1,371.50 per troy ounce on the Globex electronic trading platform.
Central banks around the world are becoming increasingly wary of currencies that are caught up in the prospect of a global currency war. Japan, China, the U.S. and the European Union nations all want to be competitive exporters, and each one sees monetary policy as a tool to that end. A weaker dollar makes U.S. exports more attractive; the cheap yuan is one of the sources of China's massive success as a manufacturer.
But the constant dilution of value ends up hurting holders of currency, like central banks – and gold is one way to hedge against depreciating cash holdings.
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