NEW YORK (TheStreet ) -- Gold prices were hitting record highs Tuesday as the Bank of Korea announced it bought gold for the first time since 1998, reminding investors of gold's large safe haven appeal as global economies slow.
Gold for December delivery was popping $17.90 to $1,639.60 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,643.70 and as low as $1,618.80 while the spot gold price was adding $16.10, according to Kitco's gold index.
Silver prices were up 94 cents to $40.25 an ounce. The U.S. dollar index was up 0.19% at $74.46 while the euro was down 0.34% vs. the dollar.
The Bank of Korea announced it bought 25 tons of gold over the past two months, valued at $1.24 billion, or roughly $1,550 an ounce. Central banks tend to buy gold when they need to diversify or increase their holdings as mandated by the government and are not necessarily market timers, but they do buy as a long term investment.
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The purchase brings Korea's total gold holdings to almost 40 tons, still a fraction of the bank's total reserves compared to the U.S. or Portugal, which hold 74% and 84% of its reserves in gold, respectively, according to the World Gold Council.
The purchase, however, does underscore the fact that central banks have become net buyers of gold, adding a huge floor under the gold market and reminding investors that countries are purchasing large quantities. Official sector buying in the first quarter was 129 tons, according to the World Gold Council's Gold Demand Trends report, led by Mexico which bought 93 tons.
"There has been a fundamental shift in the behavior of central banks," says Natalie Dempster head of government affairs for the World Gold Council. "Central banks on the whole have been net sellers of gold for the past two decades."
Since the second quarter of 2009, however, central banks from emerging market countries have transitioned into net buyers. One of the biggest buyers is China. Over the past five years, the country secretly increased its gold holdings from 600 tons to 1,054 tons. China currently holds only 1.6% of its reserves in gold. Dempster says that if the continent were to reallocate its holdings to 3%, it would need to buy 1,000 tons of gold.
China is the world's largest gold producer and vies with India for title of largest gold consumer. Nigel Moffett, head of treasury at Gold Corp. says, "[China is] the world's number one producer, producing 340 tons of gold a year. You don't see any of that coming out of China. You see a lot of gold going into China." Moffatt believes that its central bank is a prominent buyer.
