BSP shifts to active gold trading

The Philippine central bank is shifting to active gold trading, Governor Benjamin E. Diokno said. — CHRIS RATCLIFFE/BLOOMBERG

THE central bank’s decision to go into active gold trading is seen as a timely move, as the price of the safe-haven asset has risen amid the pandemic, analysts said.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said in a mobile message to reporters that the Monetary Board (MB) decision to shift to active gold trading was due mainly to the change in the price dynamics of gold. The price of gold has now surged to around $2,000 per fine troy ounce (FTO), from around $1,400/FTO, he said.

Mr. Diokno also cited the law exempting taxes on the BSP’s bullion purchases from small-scale miners, as well as the ample dollar reserves as factors the MB considered in deciding to shift to active gold trading.

The country’s gross international reserves (GIR) stood at $98.6 billion as of end-July, higher by 15.8% from the $85.175 billion seen a year ago. This was largely on the higher value of gold buffers which was at $12.595 billion.

Mr. Diokno said the Monetary Board sees a need to better manage the country’s international reserves, saying it “will always be opportunistic in its reserves management.”

“Studies show that the optimal portfolio mix of gold to GIR should be 9.8%. A (World Bank) survey showed that the average allocation of gold relative to reserves should be around 9.55%. The World Gold Council report last May 2020 showed that a portfolio with 10% allocation to gold had a higher risk adjusted return compared to 0% or 5% allocation. At the moment, the ratio of gold to GIR exceeds 10%,” he said.

The BSP’s move is a welcome development although it “is a little bit late to the party,” a trader said,

“It would have been better if they did that in April before it [gold] went way above the bracket,” Ferdinand Q. Farnacio, Jr., a trader and coach at Vertex Trading, said in a Facebook message, adding the upcoming US elections may increase market volatility in the next few weeks.

Gold prices gained over 27% so far this year, as investors flock to safe-haven assets, Reuters reported.

Mr. Farnacio said the BSP should gauge its positioning, given gold has already tested record levels.

“Gold is available in the country. It is about time that these assets serve the country and to the fullest,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a text message.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the US-China trade war has partly supported gold’s position as a safe haven. He said gold purchasing is a move by central banks “partly to diversify from the dollar and from other major global currencies.” — Luz Wendy T. Noble

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