Thai gold imports plunge

Thai gold imports plunge

Gold shipments to Thailand are forecast to contract by as much as half this year, a sign the unprecedented Asian demand that helped stem last year’s rout in prices is weakening.

Thailand’s purchases may be 150 to 200 metric tonnes because of falling prices and the country’s political crisis, according to YLG Bullion International Co, the largest local importer. They fell 78 % in the first quarter from a year earlier and totalled 314 tonnes in 2013, valued at about US$13 billion (422.5 billion baht)

Consumption across Asia reached a record in 2013 even as some investors in the United States and Europe lost their faith in bullion as a store of value. Prices snapped a 12-year bull market, the longest in at least nine decades. Holdings in exchange-traded products backed by gold are still contracting and Goldman Sachs Group says prices will keep retreating.

“Investors have a reduced appetite for gold as prices are expected to fall further this year, while returns are much lower than investing in equities,” Pawan Nawawattanasub, the chief executive officer of YLG, said in a May 7 interview. “As the local economy becomes sluggish amid the political uncertainty, and with the downward trend in gold prices, people would rather save money than spend it.”

Gold rose as much as 15% this year, before paring about half those gains. Bullion traded at $1,291.47 an ounce on Monday, for an annual advance of 7.5%. The metal slumped 28% in 2013, the biggest annual loss since 1981. The Standard & Poor’s 500 Index reached a record this month, while Stoxx Europe 600 Index advanced to the highest since 2008.

Gold consumption in Thailand, the biggest user in Asia after China and India, expanded 73% to 140.1 tonnes last year, according to World Gold Council data. Imports were higher than local consumption in 2013 as some bullion was re-exported, including jewelry.

World consumer demand rose 21% to 3,864 tonnes in 2013 as usage in China surged 32 % to 1,065.8 tonnes, an all-time high. Across Asian countries tracked by the council, including India, China, Japan and Southeast Asia, consumption expanded 25% to 2,434 tonnes.

Demand in China in 2014 may drop back to the level seen in 2012, Dick Poon, the general manager at Heraeus Metals Hong Kong Ltd, said in a May 8 interview. Imports by China may decline over the next several months after the yuan weakened, according to Standard Chartered Plc.

Thailand has had a caretaker administration since December amid a multi-year tussle between rival groups over control of the government. The deadlock, marked by violent street clashes, has caused consumer confidence to slump to an almost 13-year low, and credit-rating companies warned that prolonged unrest threatens to damage an already fragile economy.

The crisis has crippled many of the main economic drivers, hurting private consumption and tourism. Data from the government on Monday may show the economy shrank 2.2% in the first quarter from the previous three months, according to the median estimate of 12 analysts surveyed by Bloomberg.

While the political impasse makes it hard for businesses to make investment decisions, consumers still seem to have a positive view on the gold price, said Victor Thianpiriya, a commodity strategist at Australia & New Zealand Banking Group Ltd in Singapore.

Imports of bullion nearly doubled to 10.6 tonnes in March from February, according to the data from the Commerce Ministry. That may mean demand is starting to improve, Mr Thianpiriya wrote in an e-mail.

“The sharp increase in gold buying last year is a clear indication of the demand response to lower prices,” Mr Thianpiriya said. While prices continued to drop, hurting confidence in gold as an investment, Asia demand isn’t temporary and will continue to support prices, he said.

Thai consumption may drop this year to the 2012 total of about 80 tonnes, Albert Cheng, the WGC’s Far East managing director, said in an e-mail. Purchases will extend declines as long as India continues to impose high import taxes designed to curb inflows of goods such as jewelry from Thailand, he said.

India raised tariffs on overseas bullion three times last year, and tightened financing to rein in a record current- account deficit and defend the rupee. The government also increased the import tax on gold jewelry.

Bullion prices will extend losses as the US Federal Reserve trims its stimulus programme, according to Goldman Sachs. The metal will drop to $1,195 in three months and $1,050 in a year, the New York-based bank said in a May 13 report.

Holdings in the SPDR Gold Trust, the largest bullion-backed ETP, dropped to 780.46 metric tonnes on May 12, the lowest level since January 2009, data compiled by Bloomberg show. The assets fell 41% last year.

The number of Thai investors trading gold is significantly lower this year as many still hold bullion bought last year, said Ms Pawan, who last year correctly estimated imports of more than 300 tons. Local demand this year is mainly driven by consumers buying necklaces and small-sized bars, she said.

“If prices continue on a downward trend, gold demand will remain slow,” Ms Pawan said. “We could see investors returning into the market, building up positions, if prices fall to $1,100.”

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