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16 Oct 2019

Financial Institutions

Upward gold price strengthens Thai Baht...the turning point may be timing of the Fed’s hint at no more rate cuts (Current Issue No.3025)

          The continuously strengthening Thai Baht has caused worries among the export-related business sector and the domestic tourism industry. Since the beginning of 2019, the Thai Baht has risen 7.4 percent against the greenback and other key major and regional currencies. The Thai currency has surged in spite of net sales by international investors in bond and stock markets. Moreover, Thailand registered a high trade surplus, partly attributed to the surplus from gold trade which continues to push the Thai Baht upward. Thailand is likely to see a high surplus from the gold trade for a while as long as global gold prices continue to increase.

           ​KResearch views that the gold price trend will likely be conditional upon the Fed's signal toward the policy rate's direction.  Gold prices in the world market are likely to continue their streak of gains in line with an increase in demand for gold in the world market as the risks to global economies due to the ongoing trade war between the US and China and Brexit have not been eased. The turning point may hinge on the Fed's perspective toward risk factors to the US economy as reflected by the US central bank's decision to halt its policy rate decrease, which may happen around 1Q20 at the earliest. If the Fed signals the end of the rate decrease, it will ease tension on gold prices and take pressure off the Thai Baht as a result of a declining trade surplus from the gold trade.

Financial Institutions