Korea Considers Gold

From Bloomberg:

Bank of Korea `Under Pressure' to Boost Gold Holdings, Shinhan's Oh Says
By Kim Kyoungwha and Sungwoo Park - Aug 25, 2010 9:14 PM MT

The Bank of Korea, which has shunned adding gold to foreign-exchange reserves, is “under pressure” to consider purchases as the global economy worsens and the price advances, Shinhan BNP Paribas Asset Management Co. said.

“Given that central banks in India, Russia and China have bought gold for defense, the Bank of Korea can’t help but feel under pressure to consider purchases for diversification,” said Oh Kyu Chan, Seoul-based head of the overseas fund of funds team at Shinhan BNP, which operates Korea’s biggest gold fund. Kang Sung Kyung, a senior official at the bank’s reserve-management department, had no comment today on plans for gold purchases.

Gold is trading close to a record as signs the global recovery is sputtering prompt investors to seek to preserve their wealth. Gold “offers little value” and “isn’t the trend,” Lee Eung Baek said last year when he was head of the bank’s reserve-management unit. The Bank of Korea’s holdings rank 56th worldwide, according to the World Gold Council.


The reality of living under a fiat currency system is waking up the Korean central bank. As central banks protect themselves against competitive currency devaluations and uncertainty, perhaps it would be wise for individuals to "be their own central bank" as Marc Faber says.
Here in Canada, the bank of Canada has done little so far in response to the devaluation threat. Canada's central bank only holds 3 tons of gold. The US holds over 8,000 tons according to the latest audit in 1957. It would be informative to know how much is held in the vaults today. 

In my view, the East is taking appropriate precautions in an increasingly uncertain time of unquantifiable risks to their currencies and economies as they slowly move away from US dollars and bonds and into gold and other currencies.
The trouble with the US dollar in particular is that we have huge moral hazard implicit in owning it.
In a fiat currency system based on faith and credit with the dollar as reserve currency, how can an investor feel secure with an unfaithful and uncreditworthy central bank?

If my thesis is correct, we will see Bernanke and company embark on QE2 by the end of September or beginning of November. Eventually, massive share dilution will have its effects on the US dollar, though these things often seem to take much longer than most expect.