BSP to actively trade gold holdings as prices soar

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) will actively trade its gold holdings, which account for at least a 10th of the country’s foreign exchange buffer, to take advantage of the record high price of gold in the world market.

During the Development Budget Coordination Committee (DBCC) hearing on the proposed 2021 national budget, BSP Governor Benjamin Diokno said the central bank would actively trade part of its gold holdings.

According to Diokno, gold accounts for more than 12 percent of the country’s gross international reserves (GIR) which stood at a record high of  $98.6 billion as of end-July.

“Maybe we’ll just maintain 10 percent of our GIR in gold form,” Diokno said.

According to  the BSP,  the value of its gold holdings jumped by 57 percent to $12.59 billion in July from $8.01 billion in the same month last year.

In a separate Viber message sent to reporters over the weekend, Diokno said the Monetary Board decided to shift to active gold trading instead of being passive because of the change in the price dynamics of gold.

The BSP chief said the price of gold has topped the $2,000 an ounce level to reach new record high from only $1,400/ ounce.

Diokno also cited Republic Act 11256 or an act to strengthen the country’s GIR, making the central bank’s gold purchases from small miners more attractive.

“The Monetary Board sees the need to better manage the country’s international reserves. At the moment, the ratio of gold to GIR exceeds 10 percent. The BSP will always be opportunistic in its reserves management,” Diokno said.

He said   studies show that the optimal portfolio mix of gold to GIR should be  9.8 percent.

A survey conducted by the World Bank showed that the average allocation of gold relative to reserves should be at around 9.55 percent.

According to Diokno, a World Gold Council report showed that a portfolio with 10 percent allocation to gold had a higher risk adjusted return compared to zero or five percent allocation.

The BSP has been building up its GIR  to ensure that it will not run out of foreign exchange that it could use in case of external shocks.

Diokno said the BSP would continue to source gold from small miners in the country and not from external sources.  “We don’t have to buy more gold at this time,” he said.

The BSP expects the GIR to hit $90 billion this year or 2.5 percent higher than last year’s $87.8 billion.

However, latest data showed the GIR stood at $98.6 billion as of end- July, enough to cover 8.9 months’ worth of imports of goods and payments of services and primary income. The buffer is also about 7.6 times the country’s short-term external debt based on original maturity.