Thailand: Gold Provides Liquidity Amid PandemicBy Pawan Nawawattanasub, CEO, YLG Bullion International
The global gold market was tested like never before in 2020. Covid-19 related lockdowns caused massive supply chains disruption, material shortages, and bottlenecks globally, and it was no different in Thailand, and had knock-on effects on the country’s precious metals sector.
The interruption of gold’s supply chains caused massive chaos in Thailand’s physical bullion market. Normally, the premium for importing and exporting gold in Thailand is US$1 to US$2, but the premium for exports had increased to over US$12 amid the pandemic, making the former spread of 100 Thai baht (US$3.24) insufficient to cover the cost and volatility in price movement. The spread widened to 300 Thai baht between March and May 2020.
Moreover, gold has traditionally been a popular way for Thais to save money, but the surge in global prices, coupled with the Thai baht’s weakness, has boosted the local gold price to an all-time high. This has also prompted an increase in the number of Thais who are flocking to gold shops to trade in gold jewellery and gold bars for cash, impacting businesses and the economy as gold hoarders cash in.
Thailand’s export value of gold grew by 75% from US$7.6 billion in 2019 to US$13.3 billion in 2020, according to Thai customs data. The rise was a result of growing exports as manufacturers profited from the global gold price, which rose continually throughout the year. In volume terms, the country exported 243.79 tonnes of gold in 2020 an increase of 42.63% from 170.92 tonnes of gold in 2019. Meanwhile, imports fell by 15.51% to 132.97 tonnes.
As a result of the higher local gold price and concerns over economic uncertainty, consumer demand for gold has been subdued, falling 275% from 46 tonnes in 2019 to net disinvestment of 81 tonnes in 2020.
With the rollout of Covid-19 vaccinations globally, there appears to be light at the end of the tunnel – a real possibility that the pandemic will be under control sooner rather than later. Similarly, in Thailand, we are expecting the economy to recover and expand by more than 3% this year.
However, there are still many challenges ahead that could derail the recovery of Thailand’s export-dependent Thai economy. These include new virus strains that could hinder the effectiveness of the current vaccines, the ongoing trade war between the U.S. and China, and more nations adopting trade protectionism amid the current global economic downturn.
A recent survey on Thai consumer behavior showed signs that the consumers spending is returning to pre-Covid 19 levels. However, consumption has been largely on essential items such as food and beverages, and not durable goods like electrical appliances and automobiles.
Travel related sectors remain badly hit. As tourism is an important growth engine of Thailand’s economy, the negative impact of fewer tourists has spilled over to many other sectors. The loss of income is widespread, and many households are facing financial hardship. At the same time, household debt, which registered around 84% of GDP at the end of last year, has been on the rise. Apart from taking up additional jobs (if they can find one) and borrowing, people have resorted to selling their gold jewellery and precious metals to raise desperately needed cash.
So far in 2021, we have continued to observe the selling of precious metals and gold across the country in a bid to raise cash for day-to-day living expenses. This trend will probably continue until Thailand, and the major economies, have the pandemic well under control and normal economic activities and travel can resume. However, the price pullback has also enticed some investors to replenish their vastly depleted holdings.
Furthermore, the pandemic has also led to the beginning of the “New Normal” in Thailand’s gold market. Following the crisis, many traditional services are at risk of being wiped out with the reduction of physical contact and growth of e-commerce, and this will certainly affect Thailand gold market as well.
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