Gold speculators advised to resist profit-chasing
Gold speculators are being urged to exercise caution after the domestic gold price continued to make all-time highs this week, with gold futures also experiencing substantial trading volume.
“Do not set your hopes on 30,000 baht per bahtweight, because it’s hard [to reach that level],” said Gold Traders Association chairman Jitti Tangsitpakdee. “I still remember the day the gold price hit 27,000 baht and people waited to sell at 30,000 baht, but then the price declined to less than 20,000 baht two years later.”
The local price of bullion with 96.5% purity climbed to a historic high of 28,400 baht yesterday. Queues formed in front of major gold shops on Bangkok’s Yaowarat Road.
The previous high price of bullion quoted in baht was 27,100 baht on Sept 6, 2011. The price then gradually fell to 22,900 baht on May 16, 2012 and bottomed at 17,750 baht on Nov 7, 2014.
The local gold price stayed within 17,750-21,200 baht during 2014-18 before beginning its long rise amid global geopolitical uncertainties, particularly the US-China trade dispute.
“Gold has high returns of up to 30-40%, but it can hurt you as well,” Mr Jitti said.
He noted that SPDR Gold Shares, one of the largest exchange-traded funds, has continued to buy gold every day this week, with a total of 333 tonnes during the past seven months, a figure close to 2019’s 353 tonnes.
“It’s scary when large gold funds are satisfied with the return and embark on profit-taking, which we don’t know when will happen,” Mr Jitti said.
Trade volume of gold futures on the Thailand Futures Exchange (TFEX) has also increased, especially in gold online futures, a series of gold futures with an underlying asset of gold bullion with a purity of 99.5% and traded in baht.
Gold online futures’ daily average trading volume is 31,879 contracts. The figure surged to 35,177 contracts in February and 65,394 contracts in March when the pandemic rattled confidence worldwide.
One contract of gold online futures is equivalent to 30 baht-weight of gold. In other words, 31,897 contracts is tantamount to 956,370 baht-weight of gold, said Tanarat Pasawongse, chief executive of Hua Seng Heng Group.
“If compared with the volume of gold, 14 tonnes a day is considered a lot,” Mr Tanarat said.
One tonne of gold is worth about 1.9 million baht.
TFEX managing director Rinjai Chakornpipat said the accelerating trade volume of gold online futures derives from an easy understanding of the investment product.
The buying and selling prices are akin to gold prices traded in the global market per one troy ounce, and one contract is equal to a 300 multiplier of the reference price per troy ounce, Ms Rinjai said.
Investors can calculate profit and loss positions easily by multiplying the multiplier of the reference price per troy ounce and the number of contracts they invest in, she said.