PSE Divergence Confirmed — The September Breakout That Redefined Philippine Mining in the Age of Fiat Disorder

 

The choice of the good to be employed as a medium of exchange and as money is never indifferent. It determines the course of the cash-induced changes in purchasing power. The question is only who should make the choice: the people buying and selling on the market, or the government? It was the market that, in a selective process going on for ages, finally assigned to the precious metals gold and silver the character of money. For two hundred years the governments have interfered with the market’s choice of the money medium. Even the most bigoted étatists do not venture to assert that this interference has proved beneficial—Ludwig von Mises 

In this issue 

PSE Divergence Confirmed — The September Breakout That Redefined Philippine Mining in the Age of Fiat Disorder

I. April 2023: The Thesis That Time Has Now Validated

II. September’s Seismic Shift: Mining Index Outpaces the PSEi

III. The Fiat Fracture: Gold's Three-Legged Bull Market and the Chronicle of Monetary Rupture

IV. Gold as Signal of Systemic Stress

V. Fracture Points: Tumultuous Geopolitics and the New War Economy

VI. A Militarized Global Economy and The Fiscal–Military Feedback Loop

VII. Economic Warfare: Tariffs, Fragmentation, and Supply Chain Bifurcation

VIII. World Central Banks Signal Distrust: The Gold Accumulation Surge and Fiat Erosion

IX. The Paradox of Philippine Mining Reform: Bureaucratic Control over Market Forces

X. The Philippine Mining Index Breakout: Gold Leads, Nickel Surprises, Copper Lags and the Speculative Spillover

XI. Conclusion: The Uneasy Return of Hard Assets in a Soft-Money World 

PSE Divergence Confirmed — The September Breakout That Redefined Philippine Mining in the Age of Fiat Disorder 

Beyond the PSEi: Tracking the Philippine Mining Index's decoupling, the gold-fiat fracture, and the systemic risks that power resource equities. 

I. April 2023: The Thesis That Time Has Now Validated

Figure 1 

Back in April 2023, we predicted that rising gold prices would boost the Philippine mining index for several reasons: (see reference) 

1. Unpopular – It is the most unpopular and possibly the "least owned" sector—even "the institutional punters have likely ignored the industry." As proof, it had the "smallest share of the monthly trading volume since 2013." 

2. Lack of Correlation – "its lack of correlation with the PSEi 30 should make it a worthy diversifier" 

3. Potential Divergence – We wrote that "the current climate of overindebtedness and rising rates seen with most mainstream issues, the market may likely have second thoughts about this disfavored sector. Soon." 

4. Formative Bubble – We posed that "If the advent of the era of fragmentation or the age of inflation materializes, could the consensus eventually be chasing a new bubble?" 

Well, media coverage hardly noticed it, but the relative performance of the Mining sector vis-à-vis the PSEi 30—or the Mining/PSEi ratio—made significant headway last September. It critically untethered from its 5-year consolidation phase. (Figure 1, topmost chart) 

Recall: mines suffered a brutal 9-year bear market from 2012 to 2020. The Mining/PSEi ratio hit its secular low during the pandemic recession, pirouetted to the upside, peaked in September 2022, but remained rangebound—nickel lagged, and gold lacked sufficient momentum to lift the index. 

II. September’s Seismic Shift: Mining Index Outpaces the PSEi 

That dramatically changed in September. The Mining/PSEi ratio experienced a seismic breakout, powered by a decisive thrust in gold mines, buoyed further by surging nickel mines. 

But this time may be different. The 2002–2012 bull cycle was driven by Mines outrunning a similarly bristling PSEi 30. Today, the Mines are diverging—operating antithetically from the broader index—a potential reflection of gradual and reticent transition of market leadership. (Figure 1, middle graph) 

The September numbers underscore the shift (Figure 1, lowest table) 

PSEi 30: –3.28% MoM, –18.14% YoY, –6.46% QoQ, –8.81% YTD

Mining Index: +25.86% MoM, +47.97% YoY, +35.07% QoQ, +63.96% YTD 

So yes, it fulfilled our projections of a bull market in motion while validating our ‘diversifier’ thesis. Still, despite its massive run, the sector remains disfavored—its share of the monthly main board volume remains the smallest.

Figure 2

Even with the gaming sector’s bubble showing cracks, speculative interest in PLUS and BLOOM (at 4.38%) nearly matched the ten-issue Mining Index (4.46%) in September. In short, market sentiment still favors gaming over mining. (Figure 2, topmost image) 

Ultimately, the mining sector’s performance—and its transition to a potential secular bull market—will hinge on its underlying commodities. 

In 2016, we wrote, 

Divergence or rotation can only be affirmed when gold mining stocks will move independently from the mainstream stocks. The best evidence will emerge when both will move in opposite directions. This had been the case from 2012 through 2015 when miners collapsed while the bubble industries blossomed. It should be a curiosity to see when both trade places. Time will tell. [italics original] (Prudent Investor, 2016) 

That’s a bullseye!

III. The Fiat Fracture: Gold's Three-Legged Bull Market and the Chronicle of Monetary Rupture 

Gold’s long-term ascent is a chronicle of monetary rupture. (Figure 2, middle chart) 

The first major break came under Franklin D. Roosevelt, with Executive Order 6102 (1933) and the Gold Reserve Act (1934), which outlawed private gold ownership and revalued the dollar’s gold peg from $20.67 to $35 per ounce. This statutory debasement set the modern precedent for political interference in money. 

The second rupture—Nixon’s 1971 “shock” ending Bretton Woods convertibility—ushered in the fiat era. Untethered from monetary discipline, gold surged from $35 to ~$670 by September 1980, a 19x return over nine years, driven by double-digit inflation, oil shocks, and institutional distrust. This marked the first leg of the post-gold-standard bull cycle under the U.S. dollar’s fiat regime. 

The second leg (2001–2012) unfolded over eleven years, beginning around $265 in February 2001 and peaking near $1,738 in January 2012—a 6.6x return. 

This phase reflected a response to cascading financial crises and aggressive monetary easing: the dotcom bust, 9/11, the Global Financial Crisis, and the Eurozone debt spiral. Central bank interventions—QE and ZIRP from the Fed and ECB—amplified gold’s role as a hedge against fiat dilution. 

The third leg (2015–) began in late 2015, bottoming near $1,050 in the aftermath of China’s devaluation. Over the next decade thru today, gold climbed past $3,800—a ~3.6x return—driven by global central bank accumulation, geopolitical fracture, asset bubbles, inflation spillovers, and record leverage across public and private sectors. 

As a sanctuary asset, gold has not only preserved purchasing power but also signaled systemic fragility. Real (inflation-adjusted) prices have reached all-time highs, underscoring gold’s function as a monetary barometer. (Figure 2, lowest diagram) 

Today, its strength reflects more than cyclical momentum—it mirrors the widening cracks of the fiat era. 

Gold’s trajectory—marked by 9-, 11-, and 10-year legs—suggests that mining valuations may be more tightly coupled to global monetary dysfunction than domestic policy alone. 

With gold now approaching USD 4,000, history suggests we may well see prices reach at least USD 6,000.

For resource-driven economies like the Philippines, this episodic repricing offers a potent lens for evaluating mining equities.  Rising gold valuations, persistent inflation, and the flight to real assets amid waning faith in fiat systems suggest that mining performance may be more tightly coupled to global monetary dysfunction than domestic policy alone. 

Still, each leg has emerged from distinct fundamentals—past performance may rhyme, but not reprise. 

IV. Gold as Signal of Systemic Stress 

Last March, we launched a three-part series forecasting that gold would sustain its record-breaking run. 

In the first installment, we argued that gold has historically served as a leading indicator of economic and financial stress: "gold’s record-breaking runs have consistently foreshadowed major recessions, economic crises, and geopolitical upheavals."

Figure 3 

Today, that reflexive relationship remains in play. 

As global growth falters under the weight of fiscal imbalance and geopolitical strain, central banks have turned decisively toward rate cuts, reversing the tightening cycle that began in 2022. By September, the scale of collective policy easing has already approached pandemic-era levels, underscoring a synchronized monetary response to mounting economic stress. (Figure 3, topmost window) 

V. Fracture Points: Tumultuous Geopolitics and the New War Economy 

In the second part, we explored how monetary disorder underpins gold’s sustained upside. "Gold’s record-breaking rise may signal mounting fissures in today’s fiat money system, " we wrote, “fissures expressed through escalating geopolitical and geoeconomic stress. "  

Those fissures have widened. Over the past month, geopolitical tensions have intensified across multiple fronts, amplifying systemic risks for both commodity markets and global capital flows. In Europe, the Ukraine war has evolved from proxy engagement to near-direct confrontation, punctuated by Putin’s claim that "all NATO countries are fighting us." 

Hungarian Prime Minister Viktor Orbán echoed this unease, posting on X: (Figure 3, middle picture) 

"Brussels has chosen a strategy of wearing Russia down through endless war… sacrificing Europe’s economy, and sending hundreds of thousands to die at the front. Hungary rejects this. Europe must negotiate for peace, not pursue endless war." 

Paradoxically, Hungary is part of EU and NATO. 

In the Middle East, Trump’s proposed Gaza peace plan has been welcomed by parts of the EU but criticized by both Israeli hardliners and Hamas, exposing deep political rifts that could derail any lasting truce. 

Washington has also expanded its Caribbean military buildup apparently eyeing Venezuela—a Russian ally—under the pretext of targeting “drug smugglers.” 

Compounding these tensions are the looming U.S. government shutdown, ICE-fueled riots, EU fragmentation, and territorial disputes across Asia (including the Thai-Cambodia and South China Sea flashpoints). Together, these developments erode international interdependence and deepen the sense of global instability. 

VI. A Militarized Global Economy and The Fiscal–Military Feedback Loop 

Adding fuel to the fire, debt-financed fiscal stimulus through military spending has reached unprecedented scale. According to SIPRI, global military expenditures rose 9.4% in real terms to $2.718 trillion in 2024—the highest total ever recorded and the tenth consecutive year of increase. (Figure 3, lowest visual) 

This war economy buildup echoes historical patterns, where militarism became not just a tool of statecraft but a structural imperative. 

Modern defense economies increasingly resemble historical warrior societies such as Bushido Japan, Sparta, and Napoleonic France, where militarism evolved from a tool of power into a systemic necessity. 

In these societies, idle warriors or elite military classes threatened internal stability, compelling leaders to redirect aggression outward. Hideyoshi’s invasion of Korea, for instance, was less about conquest than about pacifying a restless samurai class. 

Today’s massive defense spending serves a parallel function: sustaining industrial output, protecting elite interests, and demanding perpetual geopolitical justification. The result is a fiscal–military feedback loop in which peace itself undermines the architecture of power. 

This militarized economic order breeds a dangerous paradox: when growth depends on arms production and deterrence, the line between defense and aggression dissolves. As nations over-arm to preserve influence and momentum, the world risks sliding into a self-fulfilling conflict dynamic—where fiscal expansion, political ambition, and national pride coalesce into the very forces that once ignited global wars. 

VII. Economic Warfare: Tariffs, Fragmentation, and Supply Chain Bifurcation 

These geopolitical flashpoints are layered atop escalating geoeconomic risks that mirror economic warfare. 

The U.S. has rolled out sweeping new tariffs—10% on lumber and 25% on furniture and cabinetry—adding to earlier steel and aluminum levies that have rattled European industries. With a stronger euro hurting export competitiveness and rising trade barriers disrupting supply chains, Europe’s manufacturing base faces mounting stress. 

The U.S. recently raised tariffs on Philippine exports to 19%, part of a broader “reciprocal” trade posture that threatens ASEAN and EU economies alike. Export controls targeting Chinese tech and semiconductor firms underscore the growing bifurcation of global supply chains, especially in the AI and chip sectors. 

VIII. World Central Banks Signal Distrust: The Gold Accumulation Surge and Fiat Erosion

Figure 4

Amid this widening fragmentation, central banks have accelerated their gold accumulation—buying despite record-high prices. 

As the World Gold Council reported, central banks added a net 15 tonnes of gold in August, consistent with the March–June monthly average, marking a rebound after July’s pause. Seven central banks reported increases of at least one tonne, while only two reduced holdings. (Figure 4, topmost and middle charts) 

Notably, as political institutions, central bank reserve management decisions are not profit but politically driven. 

The Bangko Sentral ng Pilipinas (BSP), additionally, was the world’s largest seller of gold reserves in 2024, citing profit-taking at higher prices. Yet in 2025, it resumed small purchases—ironically, at even higher price levels. (Figure 4, lowest graph)  

Figure 5 

Measured in Philippine pesos, gold and silver prices are extending their streak of record-breaking highs (Figure 5, upper window) 

As history reminds us, the BSP’s massive gold sales in 2020 preceded the 2022 USD/PHP spike, suggesting that the 2024 divestment—intended to support the peso’s soft peg—could again foreshadow a breakout above PHP 59, perhaps by 2026? 

Most strikingly, global central banks’ gold reserves have grown so rapidly that their aggregate gold holdings are now nearly on par with U.S. Treasury holdings—a clear sign of eroding faith in the contemporary U.S. dollar-based order. (Figure 5, lower image) 

The modern-day Thucydides Trap—intensifying hegemonic competition expressed not only in geopolitics, but also in economic, financial, and monetary spheres—has increasingly powered the gold-silver tandem. 

Viewed in this light, as gold rises against all currencies, the message is clear: it is not gold that’s appreciating, but fiat money that’s depreciating. Gold is no longer just insurance asset— it is, and remains, money itself. 

IX. The Paradox of Philippine Mining Reform: Bureaucratic Control over Market Forces 

In the absence of commodity spot and futures markets—a critical handicap to price discovery, risk management, and capital formation—the state’s default response has been to expand taxation and administrative controls instead of developing genuine market mechanisms. 

Rather than pursuing market liberalization or introducing commodity exchanges to improve efficiency and productivity, the Philippine social democratic paradigm of reform remains fixated on taxation, administration, and bureaucratic control. 

The passage of the Enhanced Fiscal Regime for Large-Scale Metallic Mining Act (RA 12253) and the push for the Mining Fiscal Reform Bill mark the government’s latest attempt to "modernize" the fiscal framework of the mining industry. 

On paper, these reforms promise stronger oversight, greater transparency, and a "fairer share" of mineral wealth between the state and the private sector. The new regime introduces margin-based royalties, a windfall profits tax, and project-level accounting rules meant to simplify tax compliance and reduce leakages. Yet, beyond the reformist veneer lies a system still anchored on bureaucratic discretion—where regulators retain broad authority to interpret profitability thresholds, accounting standards, and tax computations. 

In practice, this discretion perpetuates the opacity and arbitrariness that the law sought to correct. Rather than institutionalizing transparency, the framework risks entrenching regulatory capture, enabling bureaucrats to negotiate or manipulate fiscal obligations behind closed doors. 

The very mechanisms intended to enhance oversight—royalty audits, windfall assessments, and transfer pricing reviews—may instead become new venues for rent-seeking and selective enforcement. This tension between statutory ambition and administrative reality leaves the industry vulnerable not only to corruption but also to uneven enforcement across operators and regions—cronyism. 

In the short term, elevated metal prices could conceal these governance flaws, boosting fiscal receipts and lifting mining equities under the illusion of reform-led success. But when the commodity cycle turns, the cracks will widen: weak oversight, inconsistent standards, and arbitrary taxation could resurface as deterrents to investment and valuation stability. 

Thus, what was framed as a fiscal modernization drive may ultimately reinforce the industry’s old paradox—where boom times mask systemic fragility, and reforms collapse when prices fall. 

X. The Philippine Mining Index Breakout: Gold Leads, Nickel Surprises, Copper Lags and the Speculative Spillover 

Lastly, while gold mining shares primarily contributed to the breakout of the Philippine Mining Index, nickel mines also sprang to life and added to the rally. The Philippine Stock Exchange recalibrated the composition of the Mining Index last August to reflect sectoral momentum. 

Gold-copper Lepanto A and B replaced Benguet A and B, while gold-silver miner Oceana Gold was newly included.

Figure 6

This partial reconstitution, combined with price action, reshaped the index’s internal weightings: as of October 3, gold-copper mines accounted for 74.65%, nickel 23.53%, and oil just 1.83%—a notable shift from March 31’s 68.3%-27.44%-4.25% distribution. (Figure 6 topmost graph)

From March 31st to October 3rd, gold mining shares surged 112%, driven by tailwinds from soaring gold and silver prices. Nickel mining shares, surprisingly, jumped 66.4% despite depressed global nickel prices. Meanwhile, solo oil exploration firm PXP Energy sank 16.5%. 

The biggest ranked mines in the index, in descending order, were Apex Mining, OceanaGold, Philex, Nickel Asia, and Atlas Consolidated. (Figure 6, second to the top image) 

USD prices of Silver and Copper surging while Nickel consolidates. (Figure 6 second to the lowest visual) 

While gold’s rally was the primary engine of the index breakout—amplified by the inclusion of more gold-heavy names—the rebound in nickel miners was more ironic. 

With easy money fueling an “everything bubble,” a rising tide appears to be lifting all mining boats. 

Another factor is that local nickel miners have mirrored the moves of international ETFs such as the Sprott Nickel Miners ETF [Nasdaq: NIKL], which advanced largely on global liquidity flows rather than on improvements in the underlying metal market. (Figure 6, lowest diagram) 

In essence, the surge in nickel shares reflects financial rotation and speculative spillover—capital chasing laggards and cyclical exposure amid abundant liquidity—rather than any meaningful recovery in nickel fundamentals. If the bids are to be believed, nickel prices would eventually have to rise and remain elevated; otherwise, the rally risks running ahead of earnings reality. 

Meanwhile, despite a resurgent copper price—also mirrored in ETFs like the Sprott Copper Miners ETF [Nasdaq: COPP]—some local copper mines have made little progress in scaling higher. 

We are yet to see substantial breakouts from the peripheral mines, suggesting that speculative flows have been highly selective, favoring liquidity and index-weighted names over broader participation. 

Ironically, the divergence between copper and nickel prices underscores the fragility of the latter’s mining rally. 

While copper’s surge has been confirmed by both spot prices and mining equities—reflected in the coherent ascent of ETFs like COPP—nickel’s stagnation contrasts sharply with the outsized gains in nickel mining shares and ETFs like NIKL. 

This disconnect suggests mispricing: a speculative equity bid front-running a commodity rebound that hasn’t arrived. Without confirmation from the metal itself, the feedback loop sustaining nickel equities risks collapse, exposing the rally as a liquidity mirage rather than a durable trend. 

XI. Conclusion: The Uneasy Return of Hard Assets in a Soft-Money World 

The Philippine mining sector’s transformation from pariah to rising star is both cyclical and structural. It reflects not only higher commodity prices but also the global search for hard assets in an era of currency debasement, geopolitical fracture, and policy incoherence. 

Gold’s rise tells a story of distrust in fiat money; nickel’s divergence, of speculative excess born of liquidity overflow. 

The mining index’s ascent thus mirrors the world’s economic psychology—a blend of fear and greed, of safe-haven accumulation and ultra-loose money–financed speculative rotation. 

Whether this is a sustainable repricing or a liquidity mirage will depend on whether global monetary and fiscal regimes stabilize—or fracture further. The former seems close to impossible; the latter, increasingly probable. 

Either way, the Philippine mining story has become a proxy for something much larger: the uneasy return of hard assets in a soft-money world. 

Postscript: No trend moves in a straight line. Gold, silver, and Philippine mining shares are now extensively overbought—inviting a countercyclical pause, not an end, to their ascent. 

____

References 

Ludwig von Mises, The Real Meaning of Inflation and Deflation, January 2, 2024, Mises.org 

Prudent Investor Newsletter, Investing Gamechanger: Commodities and the Philippine Mining Index as Major Beneficiaries of the Shifting Geopolitical Winds! Substack, April 27, 2023 

Prudent Investor Newsletter, Phisix 6,650: Resurgent Gold, Will Mining Sector Lead in 2016? Negative Yield Spread Hits 1 Month Bill-10 Year Treasuries!, Blogspot February 15, 2016 

Prudent Investor Newsletter Do Gold’s Historic Highs Predict a Coming Crisis? Substack, March 30, 2025 

Prudent Investor Newsletter, Gold’s Record Run: Signals of Crisis or a Potential Shift in the Monetary Order? (2nd of 3 Part Series), Substack, March 31, 2025 

Prudent Investor Newsletter, How Surging Gold Prices Could Impact the Philippine Mining Industry (3rd of 3 Series), Substack, April 02, 2025 

Prudent Investor Newsletter, The Long-Term Price Trend and Investment Perspective of Gold, Blogspot, August 02, 2020  

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. 

Please continue reading at substack, press link below:

https://open.substack.com/pub/theseenandunseenbybjte/p/how-surging-gold-prices-could-impact?

The War On Mining Has Utterly Failed! The Mining Industry’s 9-Year Moratorium Lifted! Will a Bull Market in Mining Emerge?

 

With the exception only of the 200-year period of the gold standard, practically all governments of history have used their exclusive power to issue money in order to defraud and plunder the people. ... money is certainly too dangerous an instrument to leave to the fortuitous expediency of politicians – or, it seems, economists –Friedrich August von Hayek 

 

In this issue 

The War On Mining Has Utterly Failed! The Mining Industry’s 9-Year Moratorium Lifted! Will a Bull Market in Mining Emerge? 

I. The War On Mining Has Utterly Failed! The Mining Industry’s 9-Year Moratorium Lifted! 

II. Short-Term Political Risks, Longer Term Economic Divergence Favoring the Mines 

III. As Global Central Banks Increase Balance Sheets, the Uptrend in Anti-Bubble Gold Remains Intact 

IV. Copper and Nickel Uptrends as Potential Inflation Hedges 

V. Price Changes of Gold (in Peso) Resonates with the BSP’s Assets 

VI. With Gold Reserves Down, BSP’s GIR Increasingly Depends on ‘Borrowed Reserves’ 

VII. How Liberalization Should Affect the PSE’s Mining Index 

VIII. Will a Secular Bull Market in the Mining Sector Emerge? Will the Mining Index Diverge with the PSYei 30? 

The War On Mining Has Utterly Failed! The Mining Industry’s 9-Year Moratorium Lifted! Will a Bull Market in Mining Emerge? 

 

I. The War On Mining Has Utterly Failed! The Mining Industry’s 9-Year Moratorium Lifted! 

 

THE WAR ON MINING HAS FAILED ABSOLUTELY!  

 

From the Inquirer (April 16): President Duterte lifted on Wednesday the nine-year moratorium on new mining agreements to boost government revenue, create more jobs and prop up the pandemic-battered economy. 

 

When the war was declared to appease the environmental left, back in June 2016, I predicted: (bold original, underline added) 

 

“Once the bubble economy begins to corrode and where prices of metals soar, such industry bullying will come to an end. Ban on mining will transform to welcome back mining!” 

 

“Of course, another reason why mining won’t likely be totally banned is because the Bangko Sentral ng Pilipinas not only buys gold from the miners (even illegal miners), they get revenues from sales to them! 

 

“So I expect the BSP to oppose a total ban. 

 

Why the War on Mining Will Fail! June 26, 2016 

 

And  

 

“The critical moment here will be when the government revenues fizzle out, or will come under increased pressure to match expenditures. The exigency to finance the wanton growth in public spending will likely spur the government to close their eyes on environmental politics.” 

 

War on Mining: Flip Flopping Exposes the Underbelly of Environmental Politics February 12, 2017 

 

Got that?  

 

To justify the liberalization or the welcoming of the mining investments, the National Government used our premises!  

 

The late British Prime Minister Margaret Thatcher in a 1976 TV interview said that "The problem with socialism is that eventually, you run out of other people's money". She was on the spot. 

 

Our validation also exhibits that the economy is a process. Even before the pandemic, the political economy flowed in this direction ever since the prohibition. 

 

The passage of the BSP’s Gold Bill in May 2019 already provided this clue.  

 

As I explained then… 

 

First, the domestic mining industry IS the primary source of gold for the BSP, which it uses to manage its balance sheet. 

 

Second, the massive backlash of excise taxes on the industry, and thus its UTTER failure! 

 

This excerpt signifies an awesome confessional: “R.A. No. 11256 seeks to remedy the 99% drop in BSP’s domestic gold purchases…a result of the taxation of the sale of gold to the BSP beginning July 2011.”  

 

… 

 

Lastly, the political institutions (war on mining) have failed to control or suppress the black market, which has been the primary channel for small-scale mining activities, and subsequently, the conduit for smuggling! 

 

Bullseye! NG-BSP Admits that the War on Mining Has Failed, the BSP’s Gold Bill is Now a Law! May 26, 2019 

 

Finally, this validation. 

 

The great Nobel Prize Austrian Economist, Friedrich von Hayek, presciently wrote, 

 

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. 

 

To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralising decisions, and that a division of authority will actually extend the possibility of overall order. 

 

Von Hayek, Friedrich August, The Fatal Conceit, p 76-77 Mises.at 

 

All other aspects covered by central planning are due to follow. 

 

Socialism. Utterly. Failed. 

 

II. Short-Term Political Risks, Longer Term Economic Divergence Favoring the Mines 

 

Given the emergence of the “Woke” (social justice warriors) political economy, popularly represented by the Environment, Social and Governance (ESG) standard, the triumph of free markets may be fleeting since the national election is around the corner. The BSP has even embarked on Green Financing! 

  

Nonetheless, because there won’t be any meaningful and sustained recovery, instead the economy will transition from a recession to a crisis of insolvencies, dependence by the National Government on the mining sector for financing will only increase. 

 

According to this 2017 Inquirer editorial (February 28, 2017): The Philippines is the fifth most mineral-rich country in the world for its combined deposits of gold, nickel, copper, aluminum and chromite resources with an estimated value of $1.4 trillion. 

 

Any source of revenues will count. 

 

Besides, global and domestic inflationary pressures are likely to drag the economy down, accentuating the role of the much belittled and besmirched sector as an inflationary hedge. 

 

In sum, yes, the political risks from the coming elections may hamper or impede the mining sector’s liberalization.  

 

But no, this free-market trend will likely continue in the face of surging prices of metals as the economy continues to keel over from the various embedded risks. 

 

III. As Global Central Banks Increase Balance Sheets, the Uptrend in Anti-Bubble Gold Remains Intact 

 

With central banks in a frenzied mode to expand their respective balance sheets, gold prices appear to represent the anti-bubble asset class. 

 

 

Figure 1 

 

 

As noted early last year, for the first time in history, gold prices soared to record highs against ALL Fiat currencies in early 2020. You read it, right…ALL. 

 

The US financial media broadcasted the USD price of gold. But it did not cover the prices of the gold in OTHER currencies, where the action truly mattered.  

 

What you are about to see is a defining monumental process in financial history!  

 

Lo and Behold, Gold’s phenomenal rise against central banking’s Fiat Money standard! 

 

See Oh, Gold!!!! February 23, 2020 

 

When global central banks, accelerated their balance sheet expansion, gold prices refused to join the bandwagon of liquidity-fueled speculative mania that spread from stocks to real estate, to junk bonds, to cryptocurrencies, to commodities, to NFTs (non-fungible tokens), and other asset classes.  

 

Signs of economic green shoots have stemmed from the tsunami of liquidity from global central banks.  Since the GDP measures spending, the sheer degree of fiscal and monetary bailouts have likewise temporarily amplified demand, creating the illusions of growth. Nevertheless, such politically aided spending adds pressure on the supply shocks, which had been hobbled principally by mobility restrictions, giving rise to higher CPI. 

 

In any case, gold prices pulled back from its milestone highs to exhibit its anti-bubble properties.  

 

Nonetheless, the uptrends in the 44-year and 20-year charts of the USD prices of gold remain solidly intact.  

 

At the moment, the 2-year trend line appears to be holding. 

 

IV. Copper and Nickel Uptrends as Potential Inflation Hedges 

 

Figure 2 

 

Prices of copper have likewise benefited from the stagflation of the 70s, and currently from supply drought and the global central bank’s liquidity boom. 

 

Like gold, the 60-year price trend of copper remains sturdy. Copper prices appear in the process of testing the support of the 20-year uptrend, which now functions as resistance. A breakout would translate to an epic high.  

 

And while we are supposed to be dazzled by the impact of surging demand for electric vehicles on nickel prices, given the current scale of imbalances, this outlook is uncertain.  

 

Nonetheless, somehow like copper, supply issues and the recent tidal wave of liquidity from global central banks have bolstered the surging prices of nickel.  

  

Prices of nickel have been rangebound in the last 10-years that has been supported by two massive rounding bottoms, as shown by the 32-year chart. An upside breakout of both can translate to a test of the May 2007 all-time high.  

 

From my perspective, like gold, reservation demand could support prices of metals behind the domestic mining industry. Or, these metals could benefit as inflation hedges than by unsustainable central bank “reflation”.  

 

However, while gold is likely to climb, copper and nickel prices may fall, should deflationary forces prevail. 

 

Gold should function as insurance against either credit deflation (wave of insolvencies) or money printing by central banks (runaway inflation). 

 

V. Price Changes of Gold (in Peso) Resonates with the BSP’s Assets 

 

Figure 3 

 

Mimicking its global peers, the BSP has expanded its balance sheet by a record 39.09% to Php 1.988 trillion amounting to a historic 40.35% share of the 2020 real GDP!  

  

The BSP's unprecedented scale of liquidity infusions spiked domestic money supply growth. In 2020, M3 to nominal GDP, as previously shown, accounted for a landmark high of 79.04%! 

  

Rather than expanding the division of labor, the GDP is now a product of BSP monetary operations! 

 

Further, gold prices in PHP appear to manifest the conditions of the BSP’s assets. 

 

Gold prices soared to a fresh record ahead in February 2020 of the unparalleled growth of the BSP’s asset-to-GDP last year. 

 

In 2011, both gold prices in PHP and BSP assets-to-GDP simultaneously set the previous records.  

 

It appears that this time has not been different.  

  

As of last week, from their ALL time highs, the recent pullback in gold prices in PHP translated to a mere 9% decline.  

 

VI. With Gold Reserves Down, BSP’s GIR Increasingly Depends on ‘Borrowed Reserves’ 

 

Gold reserves of the BSP has declined partly due to liquidations. 

 

From Philstar (April 16) Foreign reserves dropped for the third straight month in March after the government paid up foreign obligations using some of its dollars while gold values dropped, the central bank said on Friday. Gross international reserves totaled as $104.82 billion as of end-March, down 0.34% from the previous month’s level, preliminary data showed. Reserves stood at their lowest in 5 months or since accumulating to $103.8 billion in October 2020. 

 

Figure 4 

 

The BSP’s gold holdings in March dropped by .62% or USD 56.9 million, month-on-month, fundamentally reflecting price changes.   

 

But following their announcement to sell last September, the BSP embarked on gold liquidations to finance their financial obligations. 

 

The reduced gold exposure, based on IMF’s International Reserves and Foreign Currency Liquidity data, further reinforced the increasing share of other FX reserve assets (derivatives) and external borrowings of the BSP’s GIR (as of January). The latter two represents “borrowed reserves” or “USD shorts” that carry financing costs and require repayment in foreign currencies. 

 

From the Businessworld (April 12, 2021), “FOREIGN LOANS availed of by the government to finance its pandemic containment rose to $15.493 billion as of April 8, mainly due to external debt taken on for the mass vaccination program, the Finance department said.” 

 

The aggregate FX loans on the pretext of the pandemic signify 51% of the USD 30.11 billion of accrued gains from the BSP's GIR trough of USD 74.11 billion in October 2018. 

 

To simplify, the growth of the BSP’s GIR increasingly dependent, not on economic sources of FX receipts (from merchandise trade, OFWs, and BPO remittances, tourism receipts, and foreign direct investments) but financial operations backed by derivatives and multilateral and bilateral borrowings. 

  

Artificially low rates from global central bank policies have enabled and facilitated such a macroeconomic façade. 

 

The reversal of the accommodations from the easy money environment is where the problem arises. Higher financing costs will either compel the BSP to draw down on its reserves and reduce exposure on leverage, thereby limiting its ability to defend the peso. 

 

Have recent events been a partial squeeze to the BSP ‘borrowed reserves’? 

 

On this note, the BSP's path dependency is to likely deepen its espousal of inflationary policies, by magnifying its asset base with more large-scale asset purchases (LSAP or QE), coming at the expense of the peso and benefiting gold priced in the PHP. 

 

VII. How Liberalization Should Affect the PSE’s Mining Index 

 

But here’s the good news. 

 

The partial liberalization essentially clears the political obstacles on investments in the Philippine mining industry. 

  

It should lead to improvements of the fundamentals of the industry, from small-scale miners to the listed mining firms, representing the largest in the country. Theoretically, the latter’s gain should also get reflected in their share prices. 

 

The Philippine mining index currently consists of 8 firms, namely, Apex Mining, Century Peak Holdings, Lepanto Consolidated, Nickel Asia, Philex Mining, PXP Energy, and Semirara Mining. 

  

The share-weight of the full market capitalization of the subsectors has been skewed towards Nickel (45%), then Coal (25%), Gold (22%), and Oil (8%) as of April 16. 

  

Since non-institutional accounts or retail participants are likely to dominate trade in this sphere (I am guessing here), compared to issues of the main benchmark, the degree of market price distortions could be lower. 

 

The stock market cycles also include the local mining index. 

  

The mining index commenced on a boom from 2004, hit its top in 2012. The bull market lasted 8 years. Then the bears ruled from 2012 through 2020 for a total of another 8 years. 

  

In all, the latest complete market cycle, from 2004-2020, covered 16 years. 

 

With the first complete cycle from 1950 to 2003, this cycle could significantly be less than its prior. 

 

Of course, international prices of metals determined the flows and ebbs of the mining cycle. And it will continue to lay the groundwork for the industry and its participants, as well as their share prices. 

 

VIII. Will a Secular Bull Market in the Mining Sector Emerge? Will the Mining Index Diverge with the PSYei 30? 

 

Figure 5 

 

We now move to chart the “four-leaf clovers”. 

 

The rally from the depths of 2020 lifted the Mining index to reclaim its 17-year trend line. It earlier moved out of the 8-year bear market by breaking out of the downtrend also last year. 

 

For the index to reinforce the fledging mark-up/advance phase, it must stay within the context of the 17-year trend. Otherwise, a decline from here would mark the continued aging of the accumulation or bottom phase. 

 

Importantly, should the index barge through the critical resistance levels of 2007, 2019, and January 2021 and climb from there, a nascent bull market may have begun. 

 

Throughout history, accounts of divergences between the PSEi (PSYEi) and the mining index have been few and limited. But since 2012, while the PSEi traded partly up and mostly sideways, the mining index ground downhill, agonizingly.  

 

Such divergence spotlighted the underinvestments in the mines (also in agriculture) and overinvestments in the bubble sectors (real estate, malls, tourism, construction and banks) showcasing malinvestments from monetary policies in action.  

  

Will the mining index diverge anew with the managed headline index, this time in the opposite directions? If so, which of the metal sectors will lead it? Will a bullrun in the mining sector morph into a bubble as institutional accounts pile in? 

 

And should deflationary forces from the banking system gain an upper hand, how does this affect the various sectors of the mining industry? 

 

The lack of probabilities set limits on the charting predictive accuracy, although it provides a useful roadmap based on visual heuristics.  

 

Ultimately, the business and credit cycle is what matters. 

 

To be clear, this discussion of the industry is about cycles and barely about short-term momentum. Reacting to the news, this week the mining index surged 5.6%. Opportunities should emerge over time. 

 

As a disclosure, this analyst holds some position on gold mining issues.

Yours in liberty,

The Prudent Investor