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Bank of Thailand gets suspicious about paper gold

Section: Daily Dispatches

Bank of Thailand May Regulate Gold Trading to Curb Speculation

By Sarun Kijvasin, Suphannee Pootpisut, and Wichit Chaitrong
The Nation, Bangkok, Thailand
Monday, September 23, 2013

The Bank of Thailand is looking to regulate gold trading, as it suspects gold imports have been used to speculate on exchange rates. The central bank also want to protect retail investors who buy gold-linked financial papers.

"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," BoT Governor Prasarn Trairatvorakul said.

He added that the BOT wanted gold brokers and traders to disclose information about their transactions outside the Thai bourse's futures exchange.

The central bank has detected unusual gold imports that may be linked to currency speculation, he said.

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"We have found substantial discrepancies between values in US dollars and the volume of gold imports."

The central bank has come under pressure this year because of the high volatility of the dollar/baht exchange rate. At the same time, gold prices have also experienced high fluctuation, both globally and locally.

Gold importers can acquire unlimited amounts of dollars to fund their trades, but those wanting to buy foreign currency without any underlying business need permission from the central bank, Prasarn said.

While Thai jewellery manufacturers may not be involved in currency speculation, some importers could be using gold imports to cover up their speculative activities, he said.

Previously, central bank officials met with gold traders to discuss sharing information about their market activities, he said.

The governor is also concerned about the transactions of gold-linked papers, especially forward contracts transacted outside Thailand Futures Exchange. Some operators could be selling gold papers online to retail investors and taking advantage of their customers, he said.

"We don't worry about gold futures trading, since it is under supervision by the authorities. However, nobody looks after gold forward contracts."

Asked whether the authority may impose some measures to limit imports of gold as the Indian government does to address its current-account deficit, Prasarn replied that it was not necessary.

Currently, the Thai government does not collect tariffs on gold imports, and it also waives the 7-per-cent value-added tax for registered jewellery manufacturers.

Gold imports in the first seven months of this year were worth US$10.86 billion (Bt337 billion), or 8.28 per cent of total import value.

Thailand ran a current-account deficit of 0.2 per cent of gross domestic product in the second quarter but if gold imports were excluded, the current account would have been in surplus. But Prasarn does not see gold import as a threat to the current-account balance.

On the outlook for interest rates, the BOT governor said they could remain lower than in the past, since central banks around the world, particularly the US Federal Reserve, have injected massive amounts of liquidity into the market and kept policy rates extremely low.

"In the future, the rates may move to a new normal that will be lower than past levels."

He noted that even if the US economy recovers fully, the nominal interest rate could end up around 2 percentage points lower than before the 2008 crisis, when the benchmark 10-year US Treasury yield was about 4-5 per cent per annum.

For Thailand, the current policy rate of 2.5 per cent is accommodative for economic growth, he added.

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