AS INVESTORS SEEK HAVENS, GOLD TRADING SEEN TO BEEF UP G.I.R.

AS the coronavirus pandemic intensifies market uncertainties, analysts said that the Bangko Sentral ng Pilipinas’s (BSP) shift to active gold trading was a welcome move to further beef up the country’s foreign reserves. Unionbank Chief Economist Ruben Carlo O. Asuncion said investors are now seeking safe haven assets such as gold amid the uncertainties wrought by the pandemic, noting that the BSP being active on gold trading was a “good and smart move.”

“Gold has been rising because of the uncertainties brought by the Covid-19 pandemic,” he said. “If there is any investment or asset that the BSP should be holding now, it should be gold.”

The country’s gold holdings are a portion of its foreign reserves, and Asuncion said that trading the safe haven asset could lift the latter.

“It [active gold trading] will definitely help the GIR [gross international reserves] to rise further and be a security for the economy as we navigate the uncertainties of the pandemic,” he explained.

The Philippines’s GIR rose to a record high of $98 billion in end-july on the back of a surge in Central Bank’s gold holdings amounting to $12.595 billion.

The Monetary Board recently reverted to an active strategy for handling its gold reserves. The measurement of gold was changed from amortized cost to fair value, resulting in revaluation gains of $719.69 per fine troy ounce or a total of $4.58 billion.

With the country having a rich source of gold, the Unionbank economist said that trading the said asset could provide stability to the economy.

“Having the availability of gold, a great asset to have in a crisis, affords an economy an array of reliable and safe store-of-value without the challenges of value volatility, unlike other risk-free assets in a crisis where risk-free assets may end up not really less of a risk,” he said.

ING Bank Manila Economist Nicholas Antonio T. Mapa said the BSP is optimizing its GIR level and knowledge on financial markets.

“The issue on gold buying has taken a life of its own in the past few days, but rest assured that BSP will always look to maximize and optimize its assets to maintain and safeguard our precious GIR,” he said.

As of end-july, the gold reserves comprised 13 percent of the GIR. This is beyond the ideal 10-percent gold allocation prescribed by studies, the BSP said earlier.

Rising gold prices

RCBC Chief Economist Michael L. Ricafort said that gold has benefited from the pandemic-induced uncertainties, as reflected by its rising prices.

Gold reached a record price of $2,075 per ounce in August this year and is currently trading around $1,940 levels. It is up by 28 percent year-to-date, Ricafort said.

In the past five years, he said, gold price has gone up by over 85 percent.

“Increased Us-china tensions, especially in South China Sea (with risk of war/miscalculation), as the biggest geopolitical risk, also partly supported gold as a safe haven,” he said.

In addition, Ricafort said that the active trading in gold could also help develop the gold mining activities, especially those of smallscale miners, in the country.