Thailand Gold Habit Grows

October 2, 2013 at 12:23

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A steep rise in Thailand’s appetite for gold has triggered fears that speculative trading involving the metal could hurt consumers, the baht and the broader health of southeast Asia’s second-largest economy.

The country’s climb to third in the league table of Asian gold customers, behind only India and China, has fuelled suspicions among industry observers that the metal is being used for covert currency bets and unregulated online futures dealings.

The recent rise in the international gold price – up 7.5 per cent in just over three months despite a sharp fall on Wednesday – is likely to add to the worries, as it may expose losses among buyers who had bet on the metal staying around the near three-year low it hit in June.

“People are struggling to understand why we [in Thailand] have to import so much gold,” said Pipat Luengnaruemitchai, assistant managing director of Phatra Securities, a Bangkok-based investment bank. “These trading activities are part of the financial system. If anything happens, it could become a risk to the system.”

Consumer gold demand in Thailand rose 58 per cent year-on-year in the second quarter of 2013, according to the World Gold Council, a London-based industry body, enough for the country to overtake Vietnam as Asia’s third-largest market. While demand for the metal has grown strongly across the region, Thailand has the largest per capita demand of the big Asian countries surveyed by the council in its latest bulletin.

Analysts say one fear about the sharp growth in Thai demand is that because gold is priced internationally in dollars but traded locally in baht the metal has been used as a tool to speculate on the Thai currency as it has slipped against the dollar this year. Prasarn Trairatvorakul, Thailand’s central bank governor, was quoted last week in the Thai media raising this concern, and also calling for regulation to make the forward trading of gold – online or paper deals that do not involve immediate physical delivery of the metal – more transparent, to better protect the interests of investors.

The central bank governor said last week that he was awaiting a report from a special working group set up to look at the gold market and its oversight.

Pressure is growing from other quarters for tougher regulation of the country’s growing online gold trading market. Jitti Tangsithpakdi, chairman of Thailand’s Gold Traders Association, an industry body, said some new trading companies were setting up with as little as $16,000 in capital and could easily go bust if the market moved sharply.

“I am afraid there will be problems with gold trading online,” Mr Jitti said, in an interview in his office above one of the many gold jewellery shops strewn along a main road in Bangkok’s Chinatown district. “Many of these companies want to be members of the gold traders’ association – but we refused.”

The focus on the wider impact of the Thai gold trade comes after India curbed imports of the metal because they were helping push the current account into deficit. While officials in Bangkok say they are not worried about the role of gold in Thailand’s current account deficit in the second quarter of this year, the debate over gold comes amid concerns that the economy could be vulnerable to the flight of international investment capital from emerging markets.

In Bangkok’s Chinatown, gold customers underscored the crucial economic role played by a metal that is heavily used by Thais for investment as well as ornament. On a glass-covered counter containing small tablets of gold depicting the 12 animals that symbolise Chinese calendar years, Somchai Asawameekhun, a clothes shop owner, laid down eight wads of 1,000 baht banknotes to buy bullion worth about $25,000.

“It’s better than saving money in the bank,” he said, “I can make more money from the difference of [the] gold price going up and down than from bank interest.”

Sasima Manee, another boutique owner, said she was starting to buy less gold and sell more, because the price had gone up. “It’s better than ATMs,” she said. “Using ATMs makes it easy to spend money, but saving in gold slows me down.”