Thai Gold Rush Fuels Baht Surge Amidst Global Uncertainty
Thailand is experiencing an unprecedented surge in gold demand, marking its fifth consecutive year of growth, a trend significantly influenced by the local currency's rally which effectively makes bullion more affordable. This persistent appetite for gold is creating a complex challenge for the central bank as it strives to manage the precious metal's considerable impact on the value of the Thai Baht.
According to Nuttapong Hirunyasiri, managing director of MTS Gold Group, one of Thailand's leading bullion dealers, the allure of gold as an investment offering higher returns and a secure haven against escalating global and domestic political uncertainties is driving its popularity. The Thai Futures Exchange anticipates a 10% increase in Thai gold demand this year, excluding central bank purchases, to reach 53.7 tons. Data from the World Gold Council further indicates a substantial 21% jump in demand during the first half of the year, totaling 20.7 tons.
Nuttapong highlights Thailand's deep-rooted cultural and historical connection to gold, noting, "Thai people love to buy gold. Even though prices continue to rise, many people keep buying. We are seeing activities on both sides — buying and selling." Gold holds significance beyond investment, frequently offered at Buddhist temples and regarded as a traditional method of saving and transferring wealth across generations. YLG Bullion International Co., citing WGC data, points out that demand soared by 13% last year, making Thailand the sole country globally to record four consecutive years of growth, even through the Covid pandemic.
The Baht's impressive 7% rally this year, reaching its highest level since 2021, is a key factor fueling local gold demand, as explained by Jitti Tangsithpakdi, president of Thailand’s Gold Traders Association. The Bank of Thailand acknowledges gold's role in the Baht's appreciation and has pledged to intervene to curb any erratic fluctuations. Both business and tourism sectors in Thailand have urged authorities to take measures to temper the Baht's gains, which negatively impact the nation's exports and tourism revenues.
The Baht typically strengthens when Thais divest their gold holdings, converting the dollar proceeds into local currency. This close relationship means the Baht has a more significant link to gold compared to other emerging Asian currencies. Concerned by gold's disproportionate influence, officials from the Thai central bank have stated they are collaborating with the Finance Ministry to address currency movements that deviate from economic fundamentals.
However, market participants, including Jitti, tend to downplay the direct correlation between gold and the Baht's recent strength. They argue that the currency's gains are more attributable to a weakening US dollar and renewed optimism surrounding the formation of a new government. Tipa Nawawattanasub, chief executive of YLG Bullion Futures Co., adds that "De-dollarization is also prompting people to turn to gold." While profit-taking in gold prices might contribute to the Baht's strength, she clarifies, "But it’s not the major factor."
Any attempt to discourage Thais from investing in gold is likely to face considerable challenges, especially given the current weaknesses in the broader Thai financial markets, characterized by subdued stock performance and multi-year lows in government bond yields. With the outlook for gold prices remaining distinctly bullish, MTS Gold's Nuttapong anticipates an even greater number of Thais embracing gold investments. He confidently states, "The sky is the limit for gold prices," further attributing this sustained demand to global geopolitical issues and US President Donald Trump’s policies, which have collectively amplified uncertainties and thereby driven gold's appeal.
