Spot gold market stuck in tug of war

Spot gold market stuck in tug of war

SET, dealers both want majority holding

Thailand still lacks a physical gold exchange, even as it readies for an integrated market at the end of this year. The government needs to pass laws to allow the market to be priced and settled in major currencies.
Thailand still lacks a physical gold exchange, even as it readies for an integrated market at the end of this year. The government needs to pass laws to allow the market to be priced and settled in major currencies.

The Stock Exchange of Thailand (SET) is still undecided over the establishment of the country's first physical gold exchange, says the head of the futures exchange.

"We have never scrapped the plan to launch a spot gold market, but we are studying an appropriate model," said Rinjai Chakornpipat, managing director of the Thailand Futures Exchange (TFEX).

TFEX is a subsidiary of the SET.

The new exchange's incorporation also requires the government to issue new laws and this is a lengthy process, she said, so the SET decided to introduce a new gold futures product on the TFEX pending the study: a new gold contract lasting three months.

"This product can be launched immediately, but setting up a new exchange is a time-consuming process requiring new laws," said Ms Rinjai.

Setting up a spot gold bourse means laws to allow the market to be priced and settled in major currencies, the US dollar in particular. 

A physical gold exchange is crucial for the SET to achieve its goal of becoming the leading exchange in Southeast Asia, as the Asean market is expected to integrate at the end of this year. Such a bourse is also expected to help lift the trading volume of local gold dealers after they reported a decline in line with the precious metal's price slump and the launch of the Singapore Exchange's spot gold market.

However, disputes over management and shareholding between the SET and gold dealers are an obstacle as both parties want to be the major shareholder of the new bourse. 

Gold Traders Association president Jitti Tangsitpakdi said gold dealers will meet with the SET this week to ask whether there is any progress in creating the new bourse, as well as how it will affect the gold industry.

"If it is possible we want to join forces with the SET to set up a gold trading centre," said Mr Jitti.

He said gold futures trading volume is anaemic and some brokers are suffering losses, so the SET should have measures to help them or expand the investor base.

Gold's high volatility will prevail throughout this year, said Mr Jitti, predicting the price still stay between US$1,100-1,300 per ounce.

Ms Rinjai said some gold brokers have losses amid the thin gold paper trade volume as the price sank, but others are enjoying a profit as they expand brokerage services to include TFEX's popular products such as the SET50 Index futures and single stock futures.

Trading volume on the TFEX stands at 190,000 contracts a day this year, in line with the target. The most active products are the SET50 Index futures and single stock futures.

TFEX is promoting SET50 Index options, and their trading volume has doubled from last year to 1,000 contracts per day.

The futures exchange expects USD futures will become more active in the second half after the central bank approved doubling the maximum open interest in the product to 10,000 contracts per investor, she said.

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