Economists downplay gold sale backlash

The country will remain highly liquid amid external economic threats despite the recent wholesale unloading of Bangko Sentral ng Pilipinas (BSP) gold in the first half which topped sales of the precious metal globally.

Based on data from the World Gold Council, BSP sold the most gold totaling 25.95 tons during the period, decreasing its reserves by 15.69 percent to 134.06 tons.

Out of the top 10 sellers, the central bank of Thailand came second with 9.64 tons and Uzbekistan with 6.22 tons.

Gold reserves are part of a country’s gross international reserves (GIR) which help maintain its financial stability against external economic uncertainties.

Despite the decline in Philippine gold holdings, Rizal Commercial Banking Corp. chief economist Michael Ricafort said the country’s gross international reserves (GIR) that are supported by gold have remained more than adequate.

“Gold accounts for about 10 percent of the total GIR, now at $108 billion near record highs and equivalent to nearly 8 percent of total imports or more than twice the international threshold of three to four percent,” Ricafort said in a Viber message on Thursday.

BSP said the gold sale reflects its “active management” of the precious reserves.

“BSP took advantage of the higher prices of gold in the market and generated additional income without compromising the primary objectives for holding gold, which are insurance and safety,” the central bank’s statement said.

Grabbing price opportunity

Ricafort shared that global gold prices reached a new record-high at $2,600 per ounce levels or more than 10 times compared to 23 to 24 years ago.

He said the increase in gold prices stemmed from ongoing geopolitical risks, such as the Russia-Ukraine wars and tensions between Israel and the Hamas group and its allies.

“Gold is considered a haven during wars and geopolitical uncertainties. These are exogenous factors that are beyond the country’s control,” Ricafort said.

Fortunately, he said BSP leaders have established a global reputation for effectively managing such risks through monetary policies and strategies.

“BSP has always been independent, autonomous, and professionally managed for many years as attested by the numerous international awards and recognitions, with most BSP governors consistently being awarded as among the best central bankers in the world,” Ricafort said.

“Even years back, there had been some programmed monetization of the gold holdings, as part of managing its success in realizing gains,” he continued.

The GIR level provides an adequate external liquidity buffer and is equivalent to 7.8 months’ worth of imports of goods and payments of services and primary income.

BSP data said the GIR level of $108 billion as of August was higher than the $104 billion recorded in December 2023.

The BSP added the latest GIR is more than enough to cover 7.8 months’ worth of imports of goods and payments of services and primary income.

“It also represents about 6.0 times the country’s short-term external debt based on original maturity and 3.8 times based on residual maturity,” BSP said.

UP School of Economics professor JC Punongbayan said the GIR even increased from last year despite the gold sale.

“Gold is less than 10 percent of the total gross international reserves of the country, and in fact even with the recent sales, total GIR actually increased from last year,” he noted.

BSP may have decided to sell gold to boost its net income.

“For 2023, there was actually a huge decline in the net income of the Bangko Sentral ng Pilipinas so I think they’re quite eager to find or look for these profit-making opportunities or activities in order to boost their net income for this year,” he pointed out.

“Of course, we have to note that part of their capital was taken away for the Maharlika Investment Fund, so I think this is part of their ways of boosting their net income for this year.”