How Surging Gold Prices Could Impact the Philippine Mining Industry (3rd of 3 Series)

  

With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people—Friedrich August von Hayek 

In this issue 

How Surging Gold Prices Could Impact the Philippine Mining Industry (3rd of 3 Series)

I. The Absence of Commodity Markets Limits Investment Alternatives and Risk Management

II. Rising Operating Leverage: A Profit Margin Accelerator for Philippine Mines

III. Record-Breaking Gold Prices Spark a Reawakening of Philippine Gold Mining Shares (Exclusive for Substack Readers)

A. Belated Run-Up: Delayed Market Response to Gold’s Rally

B. Market Internals Reveal Vast Underweighting: Low Trading Volume and Limited Institutional Interest

C. Threading Uncharted Waters

D. Philippine Mining Industry: Entering a Bull Market Cycle? Potential for a Multi-Year Uptrend Amid Structural Challenges 

How Surging Gold Prices Could Impact the Philippine Mining Industry (3rd of 3 Series) 

This is the third and final article of our series on gold. How will record gold prices affect the Philippine Mining industry and share prices in the face of many challenges. 

I. The Absence of Commodity Markets Limits Investment Alternatives and Risk Management 

The absence of a robust commodity market in the Philippines limits investment alternatives for both producers and investors, particularly in a resource-rich nation where gold plays a significant economic role. 

Back in 2008, the Bangko Sentral ng Pilipinas (BSP) acknowledged this reality, noting that one reason for holding gold reserves was because "the Philippines is a significant producer of gold." 

This admission reveals a critical gap: instead of fostering investment alternatives for the public, the gold market remains underdeveloped, heavily reliant on physical sales—such as jewelry and ornaments—and the BSP as a major buyer of gold from local producers. 

Unlike other major ASEAN countries, including Indonesia, Thailand, Malaysia, and Vietnam, which have established commodity futures and derivatives exchanges, the Philippines lacks such a market infrastructure. 

These exchanges, accessible via platforms like the Indonesia Commodity and Derivatives Exchange, the Thailand Futures Exchange, the Bursa Malaysia Derivatives, and the Vietnam Commodity Exchange, provide critical benefits for resource-rich nations. 

Commodity markets enhance pricing efficiency by establishing transparent benchmarks, improve the allocation of commodity investments, and reduce the role of intermediaries or middle men, thereby lowering transaction and search costs. 

They enable producers and farmers to hedge against price volatility, access insurance, and secure better prices through competitive bidding, while also matching buyers and sellers more effectively. 

For savers and investors, commodity markets expand the investment universe, offering opportunities to diversify portfolios and achieve better returns by directly tapping into the price movements of commodities like gold, copper, and agricultural products. 

In the Philippines, the absence of such markets not only stifles these benefits but also limits the growth potential of the gold mining sector, leaving investors with few options beyond speculative investments in mining stocks. 

The lack of a commodity market means producers have fewer opportunities to hedge against price volatility, leaving them partially exposed to the risks of a potential global downturn, as discussed in the first article, where gold’s predictive power suggests an impending crisis.

While some Philippine gold producers mitigate this risk by hedging through international markets—such as the London Metal Exchange (LME) or the Chicago Mercantile Exchange (CME)—this approach is costly and less accessible for smaller firms, often requiring sophisticated financial expertise and exposure to foreign exchange risks. 

A local commodity market would provide a more direct and cost-effective hedging mechanism, enabling producers to lock in prices and protect against sudden drops in global demand. 

A crisis, as potentially signaled by gold’s historic highs, could expose gold miners to heightened credit risk, as lenders may tighten financing amid economic uncertainty, leading to critical dislocations in funding for operations and expansion. 

Additionally, such a downturn could reduce export revenues, particularly for the Philippines, where Switzerland and Hong Kong rank as the largest gold export markets (July 2024), accounting for a significant share of the country’s mineral exports.

For other commodity producers, such as those in agriculture or base metals like nickel, a global downturn could similarly dampen demand, disrupt supply chains, and lower export revenues, exacerbating economic vulnerabilities in a nation heavily reliant on commodity exports. 

The absence of a commodity market also limits the broader economic benefits for the Philippines. A well-functioning commodity exchange could channel investment into the mining sector, support infrastructure development—such as roads and processing facilities in mining regions—and create jobs in mining communities, fostering economic growth and reducing poverty in rural areas. 

For investors, it would provide a less speculative avenue to gain exposure to gold, copper and other commodity price movements, reducing reliance on volatile mining stocks and enabling more stable portfolio diversification. 

For listed Philippine gold mining companies, the current surge in gold and copper prices could drive share prices higher as investors seek to capitalize on rising profit margins driven by operating leverage. 

However, the lack of accessible hedging mechanisms increases their vulnerability to price swings, leaving them exposed to the downside risks of a potential crisis, such as a sudden drop in commodity prices or a contraction in global demand. 

II. Rising Operating Leverage: A Profit Margin Accelerator for Philippine Mines 

The current environment of rising commodity prices amplifies the financial dynamics for Philippine mining companies, particularly through operating leverage.

Gold has reached historic highs, as discussed in the first and second series of this article, driven by geopolitical tensions, deglobalization, and central bank buying, while copper prices have also broken into all-time highs, partly influenced by Trump’s tariffs, which have increased demand for domestically sourced metals and disrupted global supply chains.

Figure 1 

The chart of gold and copper prices illustrates this tandem rise, with gold climbing steadily since 2023 and copper following suit, reflecting heightened industrial demand and inflationary pressures. 

For Philippine gold mining companies, which often extract copper as a byproduct due to the geological association of these metals in porphyry deposits, this dual price surge presents a unique opportunity to capitalize on rising revenues, but, again, also underscores the need for accessible commodity markets to manage price volatility and attract broader investment.

Investment in mining companies hinges primarily on their reserves, which represent future earnings potential and determine a mine’s long-term viability.  

Rising commodity prices—particularly gold and copper—amplify the financial benefits for these companies through operating leverage.

Operating leverage measures how sensitive a company’s profit is to changes in revenue, driven by its mix of fixed and variable costs.

In the mining industry, high fixed costs—such as equipment, infrastructure, permits, licensing, labor, and energy—create significant operating leverage. 

This means that small increases in revenue, whether from rising commodity prices or higher output, can lead to disproportionately large boosts in profit margins, as the additional revenue is not offset by proportional cost increases. 

Conversely, if revenues decline due to falling prices or reduced production, profit margins can shrink rapidly since fixed costs remain unchanged, exposing companies to heightened financial risk during downturns.

To illustrate this dynamic, consider the following table of a hypothetical gold mining company, showing the impact of rising gold prices on its operating leverage: 

Figure/Table 2

In this example, as the gold price rises from $1,800 to $2,200 per ounce—a 22.2% increase—revenue grows from $18 million to $22 million. However, because fixed costs remain at $10 million, the operating profit surges from $6 million to $9.6 million, a 60% increase, and the profit margin expands from 33.3% to 43.6%. (Figure 2, upper table)

This demonstrates how operating leverage acts as a profit margin accelerator, making mining companies highly profitable during commodity price upswings.

Another table from Canada highlights B2Gold, a Canadian company listed in Canada, with a mining project in the Philippines provides insights into the country's gold production costs, particularly in terms of cash operating costs and All-in Sustaining Costs (AISC). (Figure 2, lower table)

The same principle applies to copper, where price increases further enhance revenues for Philippine mines that produce both metals, amplifying the financial upside.

However, this high operating leverage is a double-edged sword.

Ceteris paribus, while rising prices boost margins, a downturn in commodity prices can lead to significant losses, as fixed costs remain constant, squeezing profitability. 

Moreover, operating margins also depend on cost discipline—mines that fail to control variable costs, such as energy or labor, may see diminished gains even during price surges. 

For Philippine gold mining companies, the current environment of historic highs in both gold and copper prices offers a window of opportunity to leverage these gains, improve financial stability, and attract investment. 

Yet again, the lack of a local commodity market exacerbates their exposure to global market risks, as they cannot easily hedge against price volatility. 

As global uncertainties mount—driven by geopolitical tensions, deglobalization, and central bank policies—the development of a commodity market in the Philippines becomes increasingly urgent to unlock the full potential of its gold mining sector, mitigate the risks of an impending crisis, and ensure sustainable economic benefits for the nation. 

III. Record-Breaking Gold Prices Spark a Reawakening of Philippine Gold Mining Shares 

A. Belated Run-Up: Delayed Market Response to Gold’s Rally

Despite gold prices achieving a successive winning streak since at least 2022, as highlighted in the first segment, the Philippine Stock Exchange (PSE) largely overlooked these developments until the start of 2025. 

This delayed reaction underscores significant shortcomings in the PSE’s pricing mechanism, reflecting deeper structural issues in the market. 

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Gold’s Record Run: Signals of Crisis or a Potential Shift in the Monetary Order? (2nd of 3 Part Series)

 

In the course of history various commodities have been employed as media of exchange. A long evolution eliminated the greater part of these commodities from the monetary function. Only two, the precious metals gold and silver, remained. In the second part of the 19th century, more and more governments deliberately turned toward the demonetization of silver. In all these cases what is employed as money is a commodity which is used also for nonmonetary purposes. Under the gold standard, gold is money and money is gold. It is immaterial whether or not the laws assign legal tender quality only to gold coins minted by the government—Ludwig von Mises 

This post is the second in a three-part series 

In this Issue 

Gold’s Record Run: Signals of Crisis or a Potential Shift in the Monetary Order?

I. Global Central Banks Have Driven Gold’s Record-Breaking Rise

II. A Brief Recap on Gold’s Role as Money

III. The Fall of Gold Convertibility: The Transition to Fiat Money (US Dollar Standard)

IV. The Age of Fiat Money and the Explosion of Debt

V. Central Banks: The Marginal Price Setters of Gold

VI. Is a U.S. Gold Audit Fueling Record Prices? 

Gold’s Record Run: Signals of Crisis or a Potential Shift in the Monetary Order? 

The second part of our series examines the foundation of the global economy—the 54-year-old U.S. dollar standard—and its deep connection to gold’s historic rally. 

I. Global Central Banks Have Driven Gold’s Record-Breaking Rise 

Global central banks have played a pivotal role in driving gold’s record-breaking rise, reflecting deeper tensions in the global financial system. 

Since the Great Financial Crisis (GFC) of 2008, central banks—predominantly those in emerging markets—have significantly increased their gold reserves, pushing levels back to those last seen in 1975, a period just after the U.S. government severed the dollar’s link to gold on August 15, 1971, in what became known as the Nixon Shock. 

This milestone reminds us that the U.S. dollar standard, backed by the Federal Reserve, will mark its 54th anniversary by August 2025.

Figure 1

The accumulation of gold by central banks, particularly in the BRICS nations, reflects a strategic move to diversify away from dollar-dominated reserves, a trend that has intensified amid trade wars, sanctions, and the weaponization of finance, as seen in the freezing of Russian assets following the 2022 Ukraine invasion.  (Figure 1, upper window)

The fact that emerging markets, particularly members of the BRICS bloc, have led this accumulation—India, China, and war-weary Russia have notably increased their gold reserves, though they still lag behind advanced economies—reveals a growing fracture in the relationship between emerging and advanced economies.  (Figure 1, lower graph and Figure 2, upper image)  

Figure 2

Additionally, their significant underweighting in gold reserves suggests that BRIC and other emerging market central banks may be in the early stages of a structural shift. If their goal is to reduce reliance on the U.S. dollar and close the gap with advanced economies, the pace and scale of their gold accumulation could accelerate (Figure 2, lower chart)

Figure 3

As evidence, China’s central bank, the People’s Bank of China (PBOC), continued its gold stockpiling for a fourth consecutive month in February 2025. (Figure 3, upper diagram)

Furthermore, last February, the Chinese government encouraged domestic insurance companies to invest in gold, signaling a broader commitment to gold as a financial hedge. 

This divergence underscores a deepening skepticism toward the U.S.-led financial system, as emerging markets seek to hedge against geopolitical and economic uncertainties by strengthening their gold reserves 

In essence, gold’s record-breaking rise may signal mounting fissures in today’s fiat money system, fissures that are being expressed through escalating geopolitical and geoeconomic stress. 

II. A Brief Recap on Gold’s Role as Money 

To understand gold’s evolving role, a brief historical summary is necessary. 

Alongside silver, gold has spontaneously emerged and functioned as money for thousands of years. Its finest moment as a monetary standard came during the classical gold standard (1815–1914), a decentralized, laissez-faire regime in Europe that facilitated global trade and economic stability. 

As the great dean of the Austrian School of Economics, Murray Rothbard, explained, "It must be emphasized that gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium. Above all, the supply and provision of gold was subject only to market forces, and not to the arbitrary printing press of the government." (Rothbard, 1963) 

However, this system was not destined to endure. The rise of the welfare and warfare state, supported by the emergence of central banks, led to the abandonment of the classical gold standard. 

As Mises Institute’s Ryan McMaken elaborated, "This system was fundamentally a system that relied on states to regulate matters and make monetary standards uniform. While attempting to create an efficient monetary system for the market economy, the free-market liberals ended up calling on the state to ensure the system facilitated market exchange. As a result, Flandreau concludes: ‘[T]he emergence of the Gold Standard really paved the way for the nationalization of money. This may explain why the Gold Standard was, with respect to the history of western capitalism, such a brief experiment, bound soon to give way to managed currency.’" (McMaken, March 2025) 

The uniformity, homogeneity, and growing dependency on the state in managing monetary affairs ultimately contributed to the classical gold standard’s demise. 

III. The Fall of Gold Convertibility: The Transition to Fiat Money (US Dollar Standard) 

World War I forced governments to abandon gold convertibility, leading to the adoption of the Gold Exchange Standard—where only a select few currencies, such as the British pound (until 1931) and the U.S. dollar (until 1933), remained convertible into gold. 

Later, the Bretton Woods System attempted to reinstate a form of gold backing by pegging global currencies to the U.S. dollar, which in turn was tied to gold at $35 per ounce. 

However, rising U.S. inflation, fueled by fiscal spending on the Vietnam War and social welfare programs, combined with the Triffin dilemma, led to a widening Balance of Payments (BoP) deficit. Foreign-held U.S. dollars exceeded U.S. gold reserves, threatening the system’s stability. 

As economic historian Michael Bordo explained: "Robert Triffin (1960) captured the problems in his famous dilemma. Because the Bretton Woods parities, which were declared in the 1940s, had undervalued the price of gold, gold production would be insufficient to provide the resources to finance the growth of global trade. The shortfall would be met by capital outflows from the US, manifest in its balance of payments deficit. Triffin posited that as outstanding US dollar liabilities mounted, they would increase the likelihood of a classic bank run when the rest of the world’s monetary authorities would convert their dollar holdings into gold (Garber 1993). According to Triffin, when the tipping point occurred, the US monetary authorities would tighten monetary policy, leading to global deflationary pressure." (Bordo, 2017)

Bretton Woods required a permanently loose monetary policy, which ultimately led to a mismatch between U.S. gold reserves and foreign held dollar liabilities. 

To prevent a run on U.S. gold reserves, President Richard Nixon formally ended the dollar’s convertibility into gold on August 15, 1971, ushering in a fiat money system based on floating exchange rates anchored to the U.S. dollar. 

IV. The Age of Fiat Money and the Explosion of Debt 

With the shackles of gold removed, central banks gained full control over monetary policy, leading to unprecedented levels of inflation and political spending. Governments expanded their fiscal policies to fund not only the Welfare and Warfare State, but also the Administrative/Bureaucratic State, Surveillance State, National Security State, Deep State, Wall Street Crony State, and more. 

The most obvious consequence of this system has been the historic explosion of global debt. The OECD has warned that government and bond market debt levels are at record highs, posing a serious threat to economic stability. (Figure 3, lower chart) 

V. Central Banks: The Marginal Price Setters of Gold 

Ironically, in this 54-year-old fiat system, so far, it is politically driven, non-profit central banks—rather than market forces—that have become the marginal price setters for gold. 

Unlike traditional investors, central banks DON’T buy gold for profit, but for political and economic security reasons. 

The World Gold Council’s 2024 survey provides insight into why central banks continue to accumulate gold: "The survey also highlights the top reasons for central banks to hold gold, among which safety seems to be a primary motivation. Respondents indicated that its role as a long-term store of value/inflation hedge, performance during times of crisis, effectiveness as a portfolio diversifier, and lack of default risk remain key to gold’s allure." (WGC, 2024) 

This strategic accumulation reflects a broader trend of central banks seeking to insulate their economies from the vulnerabilities of the fiat system, particularly in an era of heightened geopolitical risks and dollar weaponization.

Figure 4 

The Bangko Sentral ng Pilipinas (BSP) has historically shared this view. (Figure 4, upper graph) 

In a 2008 London Bullion Management Association (LBMA) paper, a BSP representative outlined gold’s importance in Philippine foreign reserves—a stance that remains reflected in BSP infographics today. 

Alas, in 2024, following criticism for being the largest central bank gold seller, BSP reversed its stance. Once describing gold reserves as "insurance and safety," it now dismisses gold as a "dead asset"—stating that: "Gold prices can be volatile, earns little interest, and has storage costs, so central banks don’t want to hold too much." 

This shift in narrative conveniently justified BSP’s recent gold liquidations. 

Yet, as previously noted, history suggests that BSP gold sales often precede peso devaluations—a warning sign for the Philippine currency. (Figure 4, lower window)

VI. Is the Propose U.S. Gold Audit Help Fueling Record Prices? 

Finally, could the Trump-Musk push to audit U.S. gold reserves at Fort Knox be another factor behind gold’s rally? 

There has long been speculation that U.S. Treasury gold reserves, potentially including gold stored for foreign nations, have been leased out to suppress prices.

Figure 5

Notably, Comex gold and silver holdings have spiked since these audit discussions began. Gold lease rates rocketed to the highest level in decades last January. (Figure 5, top and bottom charts) 

With geopolitical uncertainty rising, central bank gold buying accelerating, and doubts growing over fiat stability, gold’s record-breaking ascent may be far from over. 

Yet, it’s important to remember that no trend goes in a straight line.

___

References 

Murray N. Rothbard, 1. Phase I: The Classical Gold Standard, 1815-1914, What Has Government Done to Our Money? Mises.org 

Ryan McMaken, The Rise of the State and the End of Private Money March 25,2025, Mises.org 

Michael Bordo The operation and demise of the Bretton Woods system: 1958 to 1971 CEPR, Vox EU, April 23, 2017 cepr.org 

World Gold Council, Gold Demand Trends Q2 2024, July 30,2024, gold.org