Spot gold market closer to reality

Spot gold market closer to reality

Futures dealers agree on format of exchange

Seven gold futures dealers have agreed in principle on the format of a physical gold exchange, moving a step closer to establishing the country's first spot gold market.

The dealers, which have a combined 90% market share of trade in paper and physical gold, have unanimously agreed on the make-up of the spot gold exchange, said Gold Traders Association chairman Jitti Tangsithpakdi without providing details.

The plan will be proposed to the Thailand Futures Exchange (TFEX) on Aug 18.

The seven dealers are Globlex Holding Management, Classic Gold Futures, GT Gold Bullion, YLG Group, Ausiris, MTS Gold and Hua Seng Heng Commoditrust.

Gold dealers are supporting the Stock Exchange of Thailand's efforts to set up the exchange after a decline in trading volume due to the gold price slump and the soft launch of Singapore Exchange's spot gold market. 

Without the spot gold market's formation, trading volume in Thailand is likely to decline further, Mr Jitti said.

Singapore's gold exchange is slated to launch officially early next month.

The latest move of the gold dealers came after they visited the Chinese Gold and Silver Exchange, Hong Kong's century-old bullion exchange.

The idea to set up a spot gold exchange in Thailand was floated last year by the Bank of Thailand to regulate physical gold trading after it found discrepancies between spot market trades and the US-dollar value of transactions.

In the first six months of last year, net gold imports amounted to US$10 billion and were responsible for leading the country into a trade deficit.

MTS Gold president Kritcharat Hirunyasiri said physical gold trading in Thailand had halved from its peak, while Hong Kong's spot gold market's trading volume was 500 times higher than that of the Thai market, with 90% of gold ordered by Chinese investors.

He said gold dealers would meet with TFEX executives on Aug 18 for a discussion that would centre on the establishment of the spot gold bourse.

Gold dealers plan to visit Shanghai Gold Exchange on Sept 2 to study its trading practices, Mr Kritcharat said.

In the meantime, YLG Bullion and Futures chief executive Tipa Nawawattanasub said the company had set up YLG Gold Co to provide a physical gold exchange service to gold futures investors, starting from this month.

The TFEX recently allowed paper gold investors to settle their maturing contracts in physical gold rather than cash at the seven gold futures dealers.

Ms Tipa said physical gold settlements were available for both 10-baht weight of gold contracts and 50-baht contracts.   

YLG forecasts that the gold price will move in a range of $1,180 to $1,430 per ounce or 18,000 to 21,800 baht per one-baht weight throughout the rest of this year.

The US Federal Reserve's monetary policy will have an effect on the global gold price, while Ukraine's tensions could give a boost to the gold price.

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