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The central bank’s decision Going 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 moving message to journalists that the Monetary Board (MB) decision to switch to active gold trading was mainly due to the change in the dynamics of gold prices. The price of gold has now risen to around $ 2,000 per fine troy ounce (FTO), from around $ 1,400 / FTO, he said.
Mr. Diokno also cited the law that exempts BSP bullion purchases from small-scale miners from taxes, as well as the large dollar reserves as factors that the MB considered when deciding to switch to active gold trading.
The country’s gross international reserves (GIR) amounted to 98.6 billion dollars at the end of July, 15.8% more than the 85.175 million dollars registered a year ago. This was mainly due to the higher value of the gold reserves, which was $ 12,595 million.
Diokno said that the Monetary Board sees the need to better manage the country’s international reserves and said that “it will always be opportunistic in its reserve management.”
“Studies show that the optimal combination of gold portfolio to GIR should be 9.8%. A survey (by the World Bank) showed that the average gold allocation relative to reserves should be around 9.55%. The World Gold Council report from May 2020 showed that a portfolio with a 10% allocation to gold had a higher risk-adjusted return compared to the 0% or 5% allocation. At the moment, the ratio of gold to GIR exceeds 10%, ”he said.
The BSP move is a welcome development although “it is a little late for the party,” said one trader.
“It would have been better if they had done it in April before [gold] it was well above support, ”said Ferdinand Q. Farnacio, Jr., Vertex Trading trader and trainer, in a Facebook post, adding that the upcoming US elections may increase market volatility in the coming weeks.
Gold prices are up more than 27% so far this year, according to investors Floridato safe haven assets, Reuters reported.
Farnacio said that the BSP should measure its positioning, given that gold has already tested record levels.
“Gold is available in the country. It is time for these assets to serve the country and to the fullest, ”Ruben Carlo O. Asunción, chief economist of UnionBank of the Philippines, said in a text message.
Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said the trade war between the United States and China has in part supported gold’s position as a safe haven. He said buying gold is a move by central banks “in part to diversify from the dollar and other major world currencies.” – Luz Wendy T. Noble
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