Gold as a Store of Value
Central banks are the largest gold purchasers, with significant increases in reserves noted in places like China, India, and Turkey. In 2022, central banks bought 1,136 tonnes of gold, valued at around $70 billion, marking the highest annual purchase on record.
Gold typically moves inversely to the US dollar and US Treasuries. The metal’s price can also be influenced by global geopolitical issues, economic conditions, and interest rates. Generally, a weaker dollar leads to higher gold prices, while stronger dollar conditions control its rise.
Given the recent increase in gold prices in the Philippines, with the price of a gram moving from PHP 5,869.50 to PHP 5,908.17 and the price per tola shifting upward by more than PHP 450, the current price activity seems less an anomaly and more part of a broader adjustment to external pressures. These movements, while small in percentage terms, reflect underlying responses to macro factors rather than short-term demand noise on the ground.
The Influence of Central Banks
It’s important to remember that local gold prices, such as those quoted in pesos or grams and tolas, are really just a reflection of global pricing mechanisms filtered through currency exchange rates and local market premiums. Even though the markings might appear regional, the forces that shape them are anything but — and they are active, interconnected, and persistently adjusting.
The association of gold as a store of value remains strong, particularly in volatile environments. Volatility, in this case, is not just market-related; it’s political, monetary, and based on expectations. With inflationary pressures still present in various economies, and fiat currencies facing periodic questioning, we’ve noticed an uptick in attention towards hard assets. That includes bullion, which continues to draw interest from institutional positions, not just retail demand.
Central banks have played a relentless role in this direction. In the last complete calendar year, their collective purchase of over 1,100 tonnes wasn’t triggered by aesthetics or tradition. China, India, and Turkey were notable — but the pattern is broader, with some of these nations diversifying away from the dollar dominance narrative. Their additions to reserves point to a deliberate reduction in exposure to foreign sovereign bond risk — which puts less demand on US Treasuries and more on tangible reserves. That’s been reflected not only in aggregate purchases but also in the subtle adjustments in policy communication from monetary authorities.
As gold often moves against the tide of the US dollar and Treasury yields, any traders with similar constructs in their book ought to pay attention to that negative correlation. The reason gold appears stronger when the dollar weakens isn’t purely sentiment — it’s structural. A depreciating US dollar translates directly into cheaper prices for non-dollar buyers, which fuels demand. Meanwhile, when Treasury yields increase, especially real yields, gold prices often lag due to opportunity cost calculations. Investors begin to favour instruments that pay out, reducing their exposure to non-yielding assets like gold.
In recent weeks, we’ve observed a softening in the US dollar following weaker-than-forecast economic indicators. That retreat has already edged gold upward, and if macro data continues to under-deliver, we could see further tailwinds for precious metals. Conversely, if we see a sudden moderation in geopolitical tensions or abrupt hawkish turns on interest rates from the Federal Reserve, these could check gold’s next leg higher.
