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Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said that the BSP has shifted towards active gold trading to maximize its gold reserves amid higher gold prices and a rise in buffer stocks. .
“The Monetary Board has decided to switch from passive operations (made before I took office) to active operations in large part due to the change in the gold price dynamics,” Diokno said over the weekend.
Diokno compared the price of gold before around $ 1,400 per fine troy ounce (FTO) to $ 2,000 / FTO today.
He cited the Law of the Republic No. 11256, also known as the Law to Strengthen the Country’s Gross, promulgated by President Duterte on March 29, 2019, which allowed the BSP to accumulate more gold reserves. He said the law will help increase the country’s gross international reserves (GIR).
The law exempts the sale of gold to the BSP from special and income tax on small-scale mining activities. The sale of gold by small miners to accredited traders is also exempt, as these will eventually end the BSP.
Diokno also said that the GIR of nearly $ 100 billion, a record, is another reason for the BSP to be actively involved in gold trading.
“The Monetary Board sees the need to better manage the country’s international reserves. Studies show that the optimal gold portfolio mix for GIR should be 9.8 percent, ”said the head of BSP.
He cited a Word Bank survey that the average allocation of gold as reserves should be around 9.55 percent. Meanwhile, a report by the World Gold Council said that “a portfolio with a 10 percent allocation to gold had a higher risk-adjusted return compared to zero percent of the five percent allocation.”
“At the moment, the ratio of gold to GIR is over 10 percent,” Diokno said. “BSP will always be opportunistic in managing its reserves.”
By the end of July, the GIR had risen to $ 98.6 billion, an increase of $ 5.13 billion from $ 93.47 billion at the end of June due to the revaluation of gold. The BSP’s gold reserves amounted to $ 12.59 billion compared to the previous $ 8.01 billion it has been reporting since June last year.
In July, the Monetary Board resumed an active strategy in managing gold reserves. This change revised the way gold is measured from amortized cost, which was $ 1,259.66 / FTO, to fair value, at $ 1,979.35 / FTO at the end of July, the BSP said. “This resulted in total revaluation gains of $ 719.69 / FTO or a total of $ 4.58 billion,” he noted.
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