By Kimberly Wied
Is the Bank of Thailand Stocking up on Gold?
With the Thai baht running at 13-year highs and giving the US dollar a run for its money (with the baht up 8.4 percent against the dollar this year), there is currently heated speculation revolving around why Thailand’s gold imports in July 2010 were reportedly almost 13 times the amount imported in June 2010.
Everyone knows gold demand can be capricious and unpredictable, but the recent dramatic increase in gold imports has definitely grabbed the attention of locals and has provided ample fodder to toss down the gossip grapevine. Is it due to global jewelry demand? Or perhaps suppliers are simply re-stocking on gold in Thailand, after their supplies were depleted. The alleged purchase by Thailand would seem to be linked with massive purchases by India and China last year, and Bangladesh this year. There are also reports of China buying gold surrepticioulsy through private agents.
According to recent article in the Financial Times , neither one of these options seem all that plausible, however, and attention has turned to the Bank of Thailand, which holds about $157 billion in foreign reserves. Economists in Bangkok estimate the Bank of Thailand keeps between 60 to 85 percent of this reserve in dollars. With the current trend in the appreciation of the Thai baht, this means that the Bank of Thailand is losing a whole lot of money on their US dollar reserve holdings lately. So could the Bank of Thailand be partly responsible for the huge increase in gold imports? Is the bank stocking up on a currency that seems a bit more secure than the crumbling might of the US dollar? Thais seem to be paying attention to the Bank of Thailand’s lead.
The Local Demand for Gold in Thailand:
Thailand’s gold prices have risen from 14,000 per baht to almost 19,000 baht over the past 2 years. Thailand shops have occasionally been forced to close during this period because of their inability to meet customer demand. The rise in gold price has tracked the global rise which passed the $1300 dollar per ounce this past week.
Currently, there is only one regulation in Thailand covering the purchasing and selling of gold which is the Thailand Consumer Protection Law. According to the Thailand Gold Trader’s Association, the Consumer Protection Board controls the labeling for all gold shops in Thailand. Thailand law provides that gold shops must label all the gold for sale and include the weight and gold percentage. They also must sell the gold at a certain price which is controlled by the Gold Trader’s Association. The same applies to any company operating a commercial enterprise in Thailand, in relation to trade in gold. Therefore, there is an established system in place for the purchase and sale of gold in Thailand, lending a sense of security, for some, to any potential transactions.
On the Thai cultural front, gold has played a large part in Thailand’s history. It has been used as a form of currency for thousands of years, as well as serving as the main precious metal used in ornate temple decorations, statues of the Buddha and other forms of Thai art. Thais place a higher value on gold than other metals such as silver, and gifts of gold jewelry are commonly viewed as high quality and a payment of respect to the receiver. Gold is also used on such occasions as providing payments for marriage dowries, etc. In Thailand, the gold trade has become a normalized part of Thai culture.
Buying Gold in Thailand:
As anyone visiting Thailand knows, there is an abundance of gold shops and gold is used almost as an alternative currency in Thailand. The rates are set by the Thailand Gold Association and products are standardized. Gold shops in Thailand have been long established and as such the process to buy gold seems secure. In contrast, there is a lack of cultural acceptance of the gold trade in the United States. Does gold play an important part in the history of America? Yes, it does, and to find out more you can read about the gold standard and how this affected America for the last couple of hundred years. Yet there is no underlying cultural value for gold in the USA, and it certainly doesn’t have the kind of history it has enjoyed in Thailand.
Update February 2011: New video documentary on Gold Buying in Thailand
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In August of 2010 the Capitol Market Development Committee of Thailand further opened the doors for investors to jump on board and follow suit in the gold rush. The committee approved a regulation that would allow consumers to invest directly in gold through the assistance of investment-fund firms. Investment-fund firms can now offer consumers three forms of direct investments in gold: simple gold funds, gold exchange-traded funds and complex gold funds. According to the Securities and Exchange Commission, these regulations have been put in place as a means of offering investors additional products and financial investment tools.
However, these new investment tools have brought with them not only new opportunities for investors, but also new opportunities for scam artists and illegitimate investment-fund providers. The Securities and Exchange Commission has also reported an increasing number of cases where fraudulent gold investment-fund firms approach and attempt to mislead potential investors with phony options to cash-in. Some cheated investors reported being offered the option to purchase gold mines (which don’t exist) or make investments in gold bars located in remote overseas locations, (so remote they could never be found.) Other gold investment-fund scam artists will present some catchy and
clever business plan as a means of hooking their prey.
There are many opportunities available to investors in Thailand who are interested in the gold market. Some are legitimate and
unfortunately some are not. Therefore, as with any investment
opportunity, care should be taken to ensure that the investment-funds provider is legitimate and reputable.
I imagine the Bank of Thailand is completely the reason for such a rush on gold. Investors are steering clear of stock markets and shares as they’re so volatile and instead want something a little more solid and dependable – like gold.
There was a story recently that property investment was also down in the UK and US partly due to investors preferring to buy gold. Gold prices are at record highs partly because of this new demand in something that’s seen as having long-term security. Thailand loves gold, but that doesn’t explain such a rise in demand, unless it was Chinese new year when prices traditionally go through the roof or some general’s daughter is getting married and the groom’s family is in need of a major dowry. If I were an investor with pots of cash (which I’m not), I think I’d be looking to buy up gold and sit on it for a while until things calm down. And if I were a bank with a safe-full of depreciating dollars, I’d definitely be looking to get my hands on some gold. Of course if I were the Bank of Thailand I may also do something about an overly-strong baht that’s not helping overall trade figures or tourism (46 baht to the pound the other day!), but that’s just me.
Wow… that’s really nice and we need to be very careful with the gold. Really a very informative blog.
Just found this blog and I love it. What are the laws on importing gold bullion into Thailand? I have some gold maple leafs and want to bring them with me when I fly to Bangkok.
Thanks,
John
I have gold want to sale