BSP gold buy down 76% due to smuggling

Environment Secretary Ramon Paje. INQUIRER FILE PHOTO

Where has the bulk of the gold gone?

Environment Secretary Ramon Paje on Thursday said that “substantial smuggling” of gold out of the Philippines could explain the dwindling number of traders selling the yellow metal to the Bangko Sentral ng Pilipinas (BSP).

Paje said gold purchases of the BSP from small-scale miners, who accounted for three-fifths of the country’s gold production, declined 76 percent to 1,722 kilograms in the third quarter from 7,166 kg a year ago.

“In terms of value, it went down from P12.32 billion in 2010 to P3.55 billion for the same period in 2011,” said a report from the Department of Environment and Natural Resources.

Paje suspected that the precious metal was being smuggled out of the country because sellers wanted to avoid the 2-percent excise and the 5-percent withholding taxes imposed by the BSP.

He said the traders also wanted to take advantage of gold’s high prices in overseas markets.

Ports, private planes

“We are very concerned about this drop. We suspect that there is smuggling,” he said at a press briefing Thursday.

Paje said the precious metal could be smuggled out of the country through ports or private planes.

Only the BSP, he said, was mandated to buy the output of small gold miners.

The price of gold has been increasing over the past months as developed economies face financial instability and mounting debts.

Compared with currencies and other commodities, gold is seen as a stable and safe haven for investors.

Record high

Gold hit a record high of $1,900 an ounce in August, when the US government was formulating a way out of its debt crisis.

On Thursday, gold was selling for $1,735 an ounce, according to the London Metal Exchange.

In a text message, Deputy Governor Diwa Guinigundo of the BSP said the drop in the central bank’s gold purchases in the third quarter “was reportedly caused by the collection of the 2-percent excise tax and the 5-percent withholding tax from the gold sellers to the BSP.”

Asked if there was not enough gold to buy, Guinigundo replied “Yes.”

The decline in the BSP’s gold-buying activity comes at a time when central banks worldwide are stepping up gold purchases to boost their reserves.

Countries diversify

Central banks, especially those in emerging economies, have accelerated gold purchases in recent months to diversify  growing foreign exchange reserves, with official sector gold purchases in the third quarter surging over five-fold from a year ago to 148.4 tons, according to the World Gold Council.

Data from the International Monetary Fund showed the BSP’s gold holdings fell the most so far this year among central banks, with Mexico, Russia and Thailand as the biggest buyers.

Paje said gold smuggling was a form of economic sabotage as it was affecting the country’s foreign reserves.

Subsistence miners

He dismissed the idea that miners were hoarding gold, noting that they must sell it immediately to take advantage of the high prices.

Most of the gold miners are subsistence miners, who need to sell their find quickly, Paje said.

The major gold-producing areas include Camarines Sur, Camarines Norte, Compostela Valley and the Caraga region.

Paje urged the customs and law enforcement officials to look into the matter, noting that this involves organized crime.

Selling gold abroad is a complex operation as miners need traders and buyers along the way, said the environment secretary.

King of metals

Gold remains the king of Philippine metals in terms of value, if not volume, according to the Mines and Geosciences Bureau (MGB). It accounts for about half of the earnings of the mining sector.

Gold production declined slightly from January to September this year, but the metal’s value rose by 3 percent to P50.5 billion.

In the first nine months of the year, the gold volume was 25,249 kg, down 14 percent from the 29,401 kg a year ago.

According to the MGB’s third quarter report, the country’s overall production value rose 15 percent to P90.02 billion from P78.58 billion in the same period in 2010. Prices of silver, copper and nickel also went up.

Silver production was up 9 percent to 32,951 kg, and earnings grew 178 percent to P2.2 billion. With a report from Reuters