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Bangko Sentral ng Pilipinas Governor Benjamin Diokno said over the weekend that the regulator will actively engage in gold trading to seize the opportunity presented by the rising price of the precious metal on the global market. Diokno said in a statement that the switch to active gold trading – from passive trading conducted before he became governor of the BSP – would be good for managing growing international reserves. “Before, the price of gold was in the neighborhood of $ 1,400 / FTO [fine troy ounces]; now, it’s around $ 2,000 / FTO. Second, a new law makes buying BSP gold from small miners more attractive, ”Diokno said in a message to reporters. He said the third reason is that gross international reserves rose to around $ 100 billion, the highest on record. “MEGABYTE [Monetary Board] sees the need to better manage the country’s international reserves. Studies show that the optimal mix of gold portfolio to GIR should be 9.8 percent. A World Bank survey showed that the average gold allocation relative to reserves should be around 9.55 percent, ”he said. Diokno cited a World Gold Council report showing that a portfolio with a 10 percent allocation to gold had a higher risk-adjusted return compared to either the 0 percent or 5 percent allocation. “At the moment, the ratio of gold to GIR is over 10 percent. BSP will always be opportunistic in managing its reserves, ”said Diokno. The country’s GIR level reached $ 98.6 billion at the end of July 2020. At this level, the GIR represents a large external liquidity buffer, which can cushion the national economy against external shocks. This is also equivalent to 8.9 months of imports of goods and payments for services and primary income. In addition, it is also approximately 7.6 times the country’s short-term foreign debt based on original maturity and 4.9 times based on residual maturity. Last year, President Rodrigo Duterte signed the Law of the Republic No. 11256 or “Law of Strengthening the Gross International Reserves of the Country”. The law exempts from consumption tax and income tax the sale to BSP of gold from small mining activities. The measure also covers the sale of gold by small-scale miners to accredited traders for eventual disposal to the central bank. RA 11256 seeks to remedy the 99 percent drop in domestic BSP gold purchases from more than 900,000 fine troy ounces in 2010 to around 10,000 FTO in 2019 as a result of taxes on the sale of gold to the BSP from July 2011. The tax The RA 11256 regime would allow the BSP to increase domestic gold purchases to increase the level of Philippine reserves that serve as the country’s buffer against external shocks.
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