Thais dipping into gold savings undermine steps to rein in baht

Bangkok

GOLD sales in Thailand are surging as households reach for a financial lifeline amid the pandemic, a tactic that risks complicating government efforts to tame an export-stifling rally in the nation's currency.

Exports of the precious metal surged to a record this year as prices climbed and Thais unloaded jewellery, bars and medallions to raise cash for routine expenses.

Bullion traders expect the trend to continue into 2021 as Covid-19 drags on tourism and manufacturing, the mainstays of Thailand's economy.

"Gold is easier to sell than land or condominiums," said Pawan Nawawattanasub, the chief executive officer of YLG Bullion International, one of Thailand's top gold traders.

"Thai people still have high stockpiles of gold, as the nation has been more of a net importer than exporter in the past."

A NEWSLETTER FOR YOU

Friday, 8.30 am

Asean Business

Business insights centering on South-east Asia's fast-growing economies.

Sign Up

Quick cash from more than 1,800 gold shops across the nation has been one of the most common ways that Thais have weathered the economic downturn, in addition to taking out short-term loans, skipping debt payments, and finding second jobs.

As a result, gold exports jumped to 237.4 tonnes during the period from January to October, compared with 170 tonnes for all of 2019, official data showed.

Net exports of 135 tonnes during the first 10 months of this year are the highest since at least 2010, showed the latest figures from the Ministry of Commerce.

Those gold shipments, however, are widening Thailand's current account surplus, helping to drive gains in the baht that threaten a fragile economic recovery.

The baht has rallied more than 9 per cent from its low in April - a surge also due to US dollar weakness - while gold is up 25 per cent this year after hitting a record in August.

The central bank is seeking to encourage more gold trading using foreign currency deposits, an attempt to shield the baht from swings in sales of the precious metal when prices spike.

The first such programme, a venture between Bangkok Bank and gold marketplace Hua Seng Heng, started this month.

"Baht strength will stay with us, as it comes from structural problems" such as a high current account surplus and low investment, said Somprawin Manprasert, chief economist at Bank of Ayudhya.

"The planned steps on gold may help curb volatility only in the long term."

South-east Asia's second-biggest economy is expected to rebound 3.2 per cent in 2021 after this year's 6.6 per cent contraction, Bank of Thailand (BOT) projections showed.

With interest rates already at a record low, the central bank has turned its attention to the baht's rapid rally, labelling it a risk to exports.

It unveiled a raft of measures to encourage capital outflows to cool the currency, a task complicated as a weak US dollar sparks fund flows into emerging markets globally.

The BOT has seen its foreign exchange reserves jump by almost US$100 billion in the past five years to a record US$257 billion, or about 47 per cent of gross domestic product, mainly from efforts to stem baht appreciation.

That has caught the attention of the US, which earlier this month added Thailand to a watch-list of potential currency manipulators.

While a vaccine is being rolled out globally, the pandemic will likely continue to drive up poverty and unemployment rates in the near term. That means Thais are expected to continue selling gold next year, said MTS Gold Group, a bullion exporter.

Suvirat Namvicha, a 22-year-old Bangkok office worker, sold a gold necklace last month to pay medical bills and other expenses related to her pregnancy after her employer slashed overtime allowances.

"I need money to pay my bills, and selling gold is my best option," she said. "I may need to sell my last gold necklace after my baby is born. Looking ahead, I only see rising expenses with limited income." BLOOMBERG