Central bank considerations when pricing ASGM purchases

Appendix I: Banco Central Del Ecuador

Objectives

Objectives of the ASGM program and others beyond narrow gold purchase

The Central Bank of Ecuador’s (BCE) non-monetary gold acquisition programme has eight strategic objectives that aim to: 

1. Promote good environmental practices in the minerals supply chain
2. Ensure adequate due diligence practices to prevent the involvement of authorised miners in illegal activities
3. Support the formalisation of small-scale miners through BCE’s gold acquisition programme
4. Promote a fair price policy for artisanal and small-scale miners
5. Promote financial inclusion in the mining sector with the support of BanEcuador (public bank) through facilitating access to banking services and lending
6. Foster economic development of mining communities
7. Increase BCE’s gold reserves and Ecuador’s international reserves
8. Strengthen dollarisation by boosting the central bank’s liquid assets.

Purchase targets

Quantity targets, limits or minimums associated with the program

The Gold Acquisition Policy of the BCE complies with Article 36 of Ecuador’s Monetary and Financial Code that mandates the BCE to purchase non-monetary gold exclusively from ASGMs in the domestic market. This policy also establishes that gold miners must be duly qualified by the central bank and sets technical parameters to determine the revolving purchase quota (US$9.4 million) to guarantee the acquisition of non-monetary gold bars at a fair price and in a timely manner.

Additionally, the program has implemented quality and certification standards that gold must meet before being purchased. This practice not only guarantees the gold’s legal source but also ensures that the product complies with international Good Delivery requirements, such as the London Bullion Market Association (LBMA) form and the Know Your Customer processes that are demanded by international refineries.

Pricing

Details of the basis for price setting and the basis of any discounts or pricing based on fineness or other criteria

The BCE establishes the purchase price of non-monetary gold acquired from ASGMs, considering international reference prices and applying a discount rate that reflects the following components:

1. Operational costs
2. Refining and sale costs
3. Gold price volatility.

This approach ensures competitive pricing considering market conditions.

How does the central bank review and update its pricing framework?

Each month the BCE reviews and updates its pricing framework, considering several key factors that ensure both fair pricing for artisanal and small-scale miners and alignment with international market prices.

As stated previously, the discount rate is comprised of three main elements:

1. The operating cost rate that covers the expenses related to the acquisition of gold, including the amortisation of the infrastructure required for its purchase
2. The refining and sale cost rate that covers the costs of gold refining to meet monetary gold standards (reserve asset)
3. The gold price volatility rate that reflects fluctuations in the international price of gold.

Does the bank monitor over- or under-recovery of discount and how does the bank account for it?

The BCE is constantly monitoring the recovery of the discount through monthly reviews by its Risk Assets Committee. These reviews evaluate the actual costs associated with gold purchases, allowing the discount rate to be adjusted prospectively based on the expected level of purchases. Hence, the gold purchase price is based on the London spot price, less a monthly discount, currently set at 1.54% (as of February 2025). Additionally, each month the bank’s finance department registers the revenues and costs of the gold acquisition program in the institution’s financial report.

The BCE adjusts the discount rate to guarantee revenues for the bank and incentivise gold selling from the ASGM sector. This approach allows the institution to maintain a sustainable price structure in line with current market conditions.

Purchasing infrastructure

What is the nature of the infrastructure that the bank maintains to perform its ASGM purchases?  

The ASGM purchase infrastructure of the BCE currently consists of two strategic geographically located gold acquisition offices in the cities of Quito and Machala. These offices are equipped to ensure non-monetary gold acquisitions from artisanal and small-scale miners (ASMs), complying with quality, safety and traceability standards in the commercialisation process.

Additionally, the BCE in its efforts to improve the ASGM operational and logistical purchase infrastructure, is renewing Machala’s office with modern, high-end facilities guaranteeing operations to small-scale and artisanal miners, and it is building a gold acquisition office in the city of Zamora. Both stations will begin operations at the end of the second quarter of 2025.

Who are the suppliers and how many are there?

The BCE currently has 62 authorised economic agents in its gold acquisition programme, distributed as follows: 53 small-scale miners, six artisanal miners and three traders.

These are duly qualified to participate in the gold acquisition process conducted by the BCE, complying with the legislated requirements and internal standards established to guarantee the legality and traceability of the gold acquired.

At what level of the gold supply chain does the bank target its purchases?  

As mentioned before, the BCE complies with the Monetary and Financial Code mandate by only acquiring non-monetary gold from artisanal and small-scale miners that have been authorised as economic agents to participate in the gold acquisition programme, ensuring that they comply with the standards required to guarantee the legality and quality of the gold acquired.

What is the quality of doré purchased?

The quality of non-monetary gold doré bars acquired by the BCE varies in a range of 70% to 99% fineness, depending on the mining region where the gold is extracted.

Nature of gold market

How many gold buyers are there in the country?

In Ecuador there are three types of legally authorised gold buyers:

1. The BCE, which purchases gold through its non-monetary gold acquisition program from authorised artisanal and small-scale miners 
2. The authorised trader, who has a marketing licence and is in charge of collecting gold from legal miners through invoicing and then exporting it to international refineries
3. The artisanal jewellery market, which buys gold from miners through invoicing jewellery and jewellery manufacturing.

Do parallel (illegal) markets exist and is smuggling an issue?

Ecuador suffers from illegal markets related to gold purchases. There are illegal collectors who present themselves as money lenders and, as part of the loan repayment they receive gold from miners at prices that apply higher discount rates (percentage penalties) in relation to the international price, which is economically detrimental for miners.

In addition, it is known that illegal gold collecting groups from several countries in the region are operating using the northern and south-central borders as distribution routes. This situation not only affects the formalisation of the sector and development of their communities but also contributes to illicit activities and the destabilisation of the gold market in Ecuador.

Are there legal, regulatory or criminal factors that restrict/limit access to the markets?  

There are no legal, regulatory or criminal factors that restrict or limit access to gold trading markets in Ecuador. Operations are regulated by the Mining Law, the Monetary and Financial Code, and the Special Regime for Small Mining, to guarantee the legality and traceability of the mineral acquired.

What level of ASGM output is the central bank able to purchase?

The BCE has a revolving purchase quota of US$9.4mn. In 2024, the Central Bank of Ecuador purchased 0.53 tonnes representing approximately US$40mn and it has estimated it will buy 0.63 tonnes of non-monetary gold in 2025 for an equivalent of US$ 56.25mn. The opening of new offices in the cities of Machala and Zamora will ensure the continued growth of gold purchases as well as the strengthening of Ecuador’s international reserves and dollarisation regime. This approach allows the BCE to support artisanal and small-scale miners while ensuring the acquisition of a significant volume of gold and contributing to ASGM formalisation.

Do market imperfections limit the central bank’s ability to achieve its purchase targets?

Market imperfections may limit the ability of the BCE to achieve its gold purchase targets. In particular, the time it takes for regulators to grant operating permits (marketing licences) and environmental licences for artisanal and small-scale miners could delay BCE’s purchasing targets. Miners tend to see these requirements as barriers for formalisation, which, in turn, affect the volume of gold available for purchase.

Without adequate government support in meeting requirements, many miners may choose to operate informally, thus limiting the BCE's ability to purchase gold from the ASGM sector and undermining overall efforts to formalise and regulate gold mining activities in the country.

Taxation

What is the taxation environment of gold sales in your country?

The tax environment for gold selling in Ecuador is subject to taxes and tariffs that regulate the mining activity.

Gold purchases made by the BCE are taxed at zero-rated Value-Added Tax (VAT) as stipulated in the Mining Law. This facilitates gold commercialisation by ASGMs, since they do not have to pay this tax in their operations with the BCE.

Additionally, other taxes and fees apply, including a 2% income tax withholding by the Internal Revenue Service (SRI, by its acronym in Spanish). There is also a mining royalty regime for small-scale mining consisting of 3% of gross production (total sales) and 2% in mining patents, calculated on the gross unit rent per hectare concessioned.

How do these impact pricing and does the central bank need to collect taxes on behalf of the government?

The impact of the tax burden on the mining sector is significant, as it can lead miners to seek tax avoidance mechanisms. The various fees and royalties can reduce miners' profit margins, which in turn can influence the pricing of gold in the market and their willingness to formalise, affecting the transparency and legality of their operations. Additionally, it is important to mention that the BCE is not responsible for collecting taxes on behalf of the government. Ecuador’s public institution in charge of tax collection is the SRI.

Accounting for gold

How does the central bank account for its gold purchases?

The BCE accounts for its purchases of non-monetary gold as an asset on its balance sheet, considering the gold spot price and associated expenses, such as transportation, insurance and gold refining. The gold purchased by the BCE is registered in its balance sheet under International Financial Reporting Standards (IFRS). It is important to mention that when gold is refined (monetary gold) and sold (US dollars) it becomes a reserve asset that increases Ecuador’s international reserves.

How will the central bank account for the value of its non-monetary gold in the event of a decline in gold prices?

This issue was addressed by the BCE with the implementation of its new gold commercialisation policy, issued by the Bank’s Monetary Board, which enables it to purchase non-monetary gold domestically from ASGMs (with a discount relative to the spot price) and sell it during the same day to an authorised LBMA refinery, preventing losses due to a decline in gold prices in the future.

Appendix II: Banky Foiben’i Madagasikara (BFM)

Objectives

The objectives of the bank’s purchase program are to reinforce and to diversify FX reserves by incorporating gold. Target holdings are approximately 8% of foreign reserves, but current holdings are only 1%, so 100% of purchases go to increase reserves.  

The bank is committed to upholding ESG objectives but currently it does not need to reconcile ESG targets with other departments when considering price setting.

Purchase targets

The BFM launched the domestic purchase program in 2020. The bank sets quantity targets through a gold committee that considers FX reserve levels and monetary policy factors. Once the first target of one tonne is achieved the bank suspends its purchases until reconsideration of purchase targets by the relevant gold committee.

Pricing

The purchase program buys gold in the local currency, Malagasy Ariary (MGA).¹

BFM updates the purchase price daily. The reference price, used for calculation, is the closing price of the London gold market SPOT (Gold NLP Index, expressed in US dollars), adjusted with the fineness of the dore after analysis by an independent laboratory. The bank applies the adjustment as a percentage to the closing price of the London market, which it converts into Malagasy Ariary to provide a price per gram rather than per troy ounce.

The price contains a further discount that covers:

• Refining costs related to finesse 
• Transportation costs
• Mining royalties
• Hallmarking fees
• Foreign exchange risk.

This discounted price evolves according to the spot price of gold, the EUR/MGA and USD/MGA exchange rates, and the purity of the purchased gold.

Purchasing infrastructure

The bank purchases its gold through an “auction” with selected mining operators that meet registration requirements.

The bank launches a call for expressions of interest and selects mining operators with whom it will contract using criteria defined in the specifications and due diligence questionnaires.

Criteria are based on the reference price for a minimum purity of 750 per thousand displayed in Malagasy Ariary and per gram. At the beginning the bank’s auctions were unsatisfactory as the offers were beyond a ceiling threshold set by the bank. Hence, the bank now acts as the price maker. 

The bank is the sole buyer at the auction and offers to buy a specific quantity of gold at the set price. The bank pro-rates differences between quantities offered and purchases.

The price level does not prevent the bank from purchasing its desired quantity targets as the guarantee of payment (risk mitigation) provides sufficient incentive for the bank to achieve its required quantity targets. 

Nature of the gold market

The gold market in Madagascar is not organised and primarily consists of over-the-counter transactions. Most payments are made in cash using the most commonly accepted local currency.

Market participants include small-scale miners, gold collectors, gold counters and permit holders with both exploitation permits (PE) and permits reserved for artisanal miners (PREA). Authorised gold operators allowed to sell to the bank include small-scale miners’ groups, gold collectors, gold counters, and mining permit holders.

Alternate legitimate buyers exist for gold along with informal market activities established at gold fields and at the various levels of the processing chain.

Taxation

Mining operators are subject to income taxes. For mining companies, profits are taxable under Income Tax law. In the event of dividend distribution, shareholders pay income tax on movable capital (IRCM). There is no export tax on gold. Mining operators pay royalties and other payments totalling 5% of the gold's value. Upon export, gold undergoes analysis and hallmarking by the Madagascar Mines Laboratory (L2M). For the central bank, royalties are included in the purchase price and the bank handles payment of these royalties to the government.

Accounting for gold

The central bank classifies gold into monetary and non-monetary categories. Monetary gold is classified as a foreign reserve, as per Article 19 of BFM's statutes, while non-monetary gold is classified under other assets. There are no specific IFRS standards governing central bank gold holdings, so BFM follows an Accounting Plan approved by the Higher Accounting Council.

The bank bases revaluations on the London quotation, with LBMA pricing applied to monetary gold and a weighted discount applied to dore gold. Revaluation frequency follows procedures for BFM's foreign currency reserves, typically on a monthly basis for long-term holdings and daily for trading purposes.

Revaluation results are recorded in an equity account, affecting the book value of dore and monetary gold. Upon sale, gold exits the balance sheet at revalued value, with gains or losses recorded in the bank’s profit and loss account. Latent revaluation gains or losses are then recycled by transferring realised amounts into the profit and loss account.

Appendix III: Bank of Mongolia

Objectives

BOM conducts its ASGM gold purchase program as part of its foreign exchange reserve management strategy, ensuring appropriate gold holdings within its foreign reserve asset allocation.

Purchase targets

The Bank of Mongolia does not have specific target levels for its gold purchases These purchases are made through local commercial banks as well as directly from licensed artisanal and small-scale gold miners, individual aggregators, and mining companies.

The bank continues to acquire gold until it meets its asset allocation targets. After that, any surplus gold is sold after being converted to the London Good Delivery standard.

Pricing

Pricing is based on the LBMA PM rate, minus a $2.00 discount, and is updated daily. This fixed amount is calculated from dedicated accounts that record the cost of acquisition, transport, insurance, storage, and processing to the LGD standard.

The bank reviews its discount price annually. Although the total cost may sometimes exceed $2.00, the BOM has decided not to increase this amount since 2018, considering the public benefit derived from the public purchase project.

Purchasing infrastructure

The bank purchases its gold through a network of commercial banks and its regional and central offices. As such, BOM has minimal dedicated infrastructure to manage its operations, as commercial banks handle most of the transportation, security, and storage services outside the central bank premises. After a certain period, all the gold purchased by commercial banks is re-sold to BOM.

Nature of the gold market

There are alternative legitimate buyers for gold trading as resellers or aggregators in the local market. However, the BOM can effectively purchase all the gold through the established infrastructure.

Taxation

All gold sellers, including artisanal and small-scale miners (ASGMs), are required to pay a 5% royalty tax. This tax is collected by commercial banks and the Bank of Mongolia, which then transfers the funds directly to the state tax department when gold sellers sell their gold.

Accounting for gold

The bank records the purchase of gold as non-monetary gold, which is classified as a non-reserve asset at cost. The expenses associated with the purchase program are treated as operating expenses, and the bank does not allocate any of these operating costs to the value of the inventory. At the end of each year, the bank performs two operations.

1. A review of the total of its purchase program expenses with the total of the discount applied (discount amount x the total of purchases). It uses this information to set future discount levels, though to date, it retains the $2 discount 
2. The inventory is counted and sealed until it is ready for shipment to LBMA-listed refineries.

The central bank categorises gold into two types: non-monetary and monetary. Monetary gold is processed gold to LGD standards and is included in foreign reserves, while non-monetary gold is recorded as a non-financial asset.

The bank revalues monetary gold accounts daily, while it does not revalue non-monetary gold accounts.

Appendix IV: Bangko Sentral ng Pilipinas

Purchase targets

The BSP has no purchase quantity target. As it is officially the sole buyer for ASGM miners, the bank buys all the gold offered, refines it at the bank’s refinery and adds it to the inventory of gold that it manages through market sales and purchases.

Pricing

The BSP purchases the refined gold at the prevailing international gold buying price set by the LBMA and prevailing PhP/USD buying rate, set daily by the BSP Financial Markets – financial services department. All pricing and payments are in Philippine peso (PhP).

The BSP purchase is in two parts. For ASGM miners the purchasing stations have assay equipment and pay 99.5% of the initial assay value (fineness). The miner receives the final 0.5% less a fixed amount processing fee after processing.

The following table lists the payment scale and processing expense rate for different finesse (recovery rates): 

Purchasing infrastructure

BSP has five regional purchasing stations and is in the process of establishing pawn shops as small-scale purchasing stations in areas not covered by the dedicated purchasing stations.

The BSP buys from gold traders at a buying station or at an accredited pawn shop close to the gold fields. The gold traders accumulate gold from the miners.

Each purchasing station is equipped with assay equipment to determine the gold’s purity.

Payment is either by BSP check or credit to a registered bank account. 

Nature of the gold market

While the BSP has a formal monopoly for purchasing ASGM gold, informal buyers exist. 

Taxation

Tax exemption of gold sales

In compliance with the Republic Act 11256 (Act to Strengthen the Country’s Gross International Reserves), gold sellers availing themselves of the tax exemption from the sale of gold shall be required to apply for BSP certification. A copy of a valid and effective small-scale mining contract must be submitted to the BSP during the certification process

Miners that are registered but do not have a small-scale mining contract are subject to 4% Excise Tax and 1% Creditable Withholding Tax for non-tax-exempt transactions.

Accounting for gold

Further details of the BSP’s gold purchase program can be found at:

http://www.bsp.gov.ph/Pages/CoinsAndNotes/PoliciesAndPrograms/GoldAndSilverBuyingAndSelling.aspx

Appendix V: Bank of Zambia 

Objectives

The BOZ undertakes its ASGM gold purchase program with the objective of accumulating the appropriate gold holdings in its foreign reserves asset allocation. There is no objective to trade gold at a profit.

Purchase targets

The bank regularly buys refined gold from a large-scale mine and bought doré gold from a small-scale mine from December 2020 to April 2021. Under its international reserves management, gold is considered outside the bank’s strategic asset allocation. The target levels for gold have not yet been determined.

Pricing

The pricing model/mechanism for doré gold has a discount component. The bank updates pricing daily using London spot less a 3% discount. The bank determined this discount through consultation. It intends to record its actual costs in its accounts for subsequent review to confirm the accuracy of the discount on a break even basis.

The gold supplier bears the doré delivery costs to BOZ’s head office. When the BOZ ships the doré gold to the refinery, which is outside the country, for processing the gold to LGD bars, it incurs transportation costs.

The refined gold price is purchased in the local currency.

When determining its purchase price, BOZ has no ESG or other objectives that it needs to consider or reconcile with other government bodies.

Purchasing infrastructure

Currently, under its local gold purchase program, the bank has a sole provider. This provider is a large-scale mine that is partly owned (minority shareholding) by a quasi-government institution. The mine also sells directly to international markets. The BOZ has started development of its ASGM program. The required doré purity level under the program is a minimum of 88% at initial assaying and therefore the gold requires further refining to meet monetary gold standards.

Nature of the gold market

Alternative legitimate buyers exist for gold that can compete with the BOZ. The refined gold price is based on the LBMA price and the exchange rate. The mine was not compelled to sell gold to the bank by the government but there was an initial request for the mine to undertake regular sales to the bank.

Taxation

Zambian gold producers face royalty and income taxes and VAT, which are administered by the government through its agency, Zambia Revenue Authority.

Hence the tax structure does not affect the BOZ’s price setting.

Accounting for gold

On acquisition of doré, the gold is accounted for as inventory (non-monetary gold). It is only converted to monetary gold upon receipt of a credit balance of refined ounces of gold deposited on the account statement from BIS. The Bank recognises these deposits as part of the foreign reserves, valued at the prevailing market prices. 

Initial measurement is at fair value. Where fair value is not available, cost is considered as an acceptable proxy, based on the cost of getting the gold to the market. Therefore, the following cost-based adjustments are applicable:

• Refining costs that are essential to bring the gold to the desired level for classification as monetary gold
• Transport costs that are necessary to deliver the gold to a recognised market location. 

Both costs cited above form part of the value of the gold and as such are not considered as recurrent expenditure. Subsequent measure is at fair value.

Any unrealised revaluations are not considered for determining annual profits or losses but are reported in the revaluation reserve account in line with Section 11(1) of the Bank of Zambia Act No. 5(2).