Asian gold fever hits Thailand

India and China’s love for gold seems to have whetted Thailand’s appetite for the shiny yellow metal, but industry analysts fear the real reason behind the sudden and steep increase in demand is speculative trading.

The effects of this in the Thai economy, southeast Asia’s second-largest, could be devastating, pushing international investment capital to flee the emerging market, suggest sources quoted by FT.com (subs. required).

Thailand’s central bank is aware of the situation and said in late September that is looking to regulate gold trading. The move came as it was found the amount of foreign exchange transactions in gold trading was far greater than actual bullion import and export value, which indicates potential foreign exchange speculation.

“The Bank of Thailand has been consulting with the Finance Ministry and the Securities and Exchange Commission on how to regulate trading of gold-forward contracts in order to make them transparent and protect the interests of ordinary investors," the financial institution’s Governor, Prasarn Trairatvorakul, told Nation Multimedia.

The bank is also concerned about the transactions of gold-linked papers. “Some operators could be selling gold papers online to retail investors and taking advantage of their customers,” Trairatvorakul added.

According to the World Gold Council, consumer gold demand in Thailand rose 58% per cent to 26.6 tons in the second quarter of 2013, compared to the same period last year.

Jewellery manufacturers have contributed to the surge, as the Thai government doesn’t charge tariffs on gold imports, and it also waives the 7% value-added tax for registered jewels makers.

Thailand is the third largest Asian consumer, behind only India and China, which —in turn— consume more than 60% of global gold.

Image by Jool-yan/Shutterstock.com