Bullion rallies but risks remain
Gold prices have been riding a high as the pandemic and geopolitical uncertainties linger, with anticipation of a bullion rally reaching US$2,000 per ounce looming on the horizon.
In the domestic market, the price of bullion with 96.5% purity is edging closer to 30,000 baht per one-baht weight gold.
The investment return generated from gold is around 30% year-to-date.
Gold has been on investors' radar as a safe haven asset and hedge against unpredictable outcomes in the global economy, with demand surging for all types of investment such as bullion, gold futures, gold mutual funds and savings made in gold.
Yet the price of gold could tank at any time if there are changes to key factors affecting the pandemic, geopolitical tensions and monetary stimulus across the globe.
Chayanee Juengmanon, senior research manager of Morningstar Research Thailand, said renowned gold funds such as SPDR Gold Shares, an exchange-traded fund that most domestic gold mutual funds invest in, had net inflows of more than $20 billion during the past 12 months, resulting in a rise in the fund's asset values by 30%.
In the past, gold was able to generate a good return when there was an economic slowdown that saw sell-offs in riskier assets such as stocks and bonds.
But the events of this year are different from the past because the price of gold has fallen occasionally in the short term, along with a decline in stock markets from selling pressure or lower interest rates, she said.
The gold price has continued to rise since March and saw an increase of more than 10% in the second quarter as outbreak fears prompted inflows to shift towards the asset class because of perceptions of safety.
When comparing 36-month returns between gold and the S&P 500 index, there have been instances where gold offered a lower return than stocks, said Ms Chayanee.
The objective for gold investment should be risk management more than core investment, because gold has recurring volatility based on its price movements, she said.
As the price of gold has surged by 30% year-to-date, profit-taking could be on the cards soon, said Ms Chayanee.
Gold futures already reached an all-time high on Aug 1, with the price surging past $2,000 an ounce before witnessing a correction at the end of the day.
The price of gold spot also continued rising to a record high of $1,987.95 an ounce on Monday.
As a US economic recovery remains a long way off, monetary stimulus should continue, which should mean continued dollar depreciation and a continued gold rally, said Thunyalak Surapol, deputy managing director at Kasikorn Research Center.
Gold online futures, a bullion with 99.5% purity and traded in baht in the domestic market, have seen fast growth, with a 73.7% contribution of the total daily average volume of precious metal futures on the Thailand Futures Exchange in 2020.
The daily average trade of gold online futures has nearly doubled to 31,893 contracts a day in 2020 from 16,289 contracts in 2019.
As the price of the yellow precious metal garners more momentum day to day, gold bar and monthly gold savings programmes are also riding the bull run.
MTS Gold and Hua Seng Heng, two of Thailand's three largest importers and exporters of gold, said their gold savings programmes continue to grow.
MTS Gold Futures chief executive Nuttapong Hirunyasiri said the company's gold savings programme was launched at the beginning of this year, before the epidemic became a pandemic.
The programme has seen swift growth, with nearly 10,000 accounts enrolled during a five-month period as it allows people to embark on gold savings starting from 150 baht.
"We see a growing trend for both gold savings products and smaller gold bars, especially the one-gramme and 25-gramme bars," said Mr Nuttapong.
More expensive gold prices and goldsmiths' premiums for gold necklaces or gold ornaments have seen demand shift to smaller gold bars for many years, he said.
"Gold ornament contributions have continued to decline since we started trading gold bullion via electronic channels around 2003," said Hua Seng Heng Group of Companies chief executive Tanarat Pasawongse.
Gold ornaments contribute less than 5% of the total domestic gold trade value, said Mr Tanarat.
Long queues continue to line up in front of gold shops on Yaowarat Road as domestic and international prices keep climbing.
He said about 90% of daily transactions have been customers selling.
"Thais have become more skilled in gold investment. Some of them have the patience to hold their gold for a profit once the price rises," said Mr Tanarat.