Bank of Korea buys gold, first time since '97-'98

Better late than never.  It's nice to know some of us small investors bought gold at much lower prices than the South Korean central bank, but prices should still head higher as more central banks purchase--rather than sell their gold holdings.

Having said that, the Bank of Korea is still under-invested with their gold holdings, and will unquestionably attempt to purchase more gold surreptitiously--in order to prevent prices from spiraling up.  Their total  reserves rank seventh in the world, yet they rank only 45th in gold reserves, up from 56th after their most recent purchase. 

http://news.yahoo.com/bank-korea-buys-gold-first-time-since-97-232516314.html

Here is another troublesome tidbit:

The BoK declined to disclose the purchase price but said it had entrusted all of its gold holding to the Bank of England for possible use in gold lending and other related transactions in future.

Gold is a non-dividend asset, so holders attempt to earn some income from their gold holdings by leasing out their bullion.  That is a mistake, because the Bank of England may in turn swap out that gold, in which case possession is 100% ownership in a world of financial and economic catastrophe.  In other words, by allowing the Bank of England to be the custodian of their gold, the BOK exposes itself to counterparty risk.  This defeats the purpose of owning gold in the first place.  Owning gold acts as an insurance policy against financial distress, inflation, and currency devaluation, and should not be confused as a dividend-earning investment vehicle.

Individual investors should take note and plan accordingly, as even central banks can make mistakes--despite making good purchasing/selling decisions.  A good rule of thumb with precious metals is if you can't put your hands on it, you don't really own it.

By storing their gold holdings in the Bank of England's vaults, the BOK may end up with legal--but empty--paper claims to their gold.