Thailand seeks ways to curb gold price impact on currency

Thailand’s central bank and the finance ministry are discussing ways to address currency moves that are not aligned with fundamental factors, including the impact of gold prices, according to a deputy governor.

Gold prices are among the non-fundamental factors affecting the baht’s movement and authorities are looking at ways to reduce the correlation between the two, Bank of Thailand (BOT) deputy governor Roong Mallikamas said. She declined to say what steps were being planned or how soon they will be announced.

“The baht should act as a shock absorber and not a shock amplifier,” Roong, a contender for the new BOT governor, said on Tuesday (Jul 15). “So, definitely things that are non-fundamental should be addressed.”

The Thai baht typically gets a boost when Thais sell gold, which is highly valued as an investment, as the US dollar proceeds get converted into the local currency. The baht surged about 11 per cent over the past year, turning it into one of Asia’s best-performing currencies, while gold climbed to a record in April.

Gold link

The baht has a much closer link to gold than other emerging Asian currencies, with the two prices having a correlation coefficient of about 0.53 over the past 90 days. A coefficient of 1 would mean they are moving in lockstep.

A strong baht is adding to risks to the Thai economy, which is already facing the threat of a punitive 36 per cent US tariff on its exports. The rally has led some ministers and business groups to urge the central bank to weaken the currency to support exports and tourism, the nation’s key growth drivers.

The BOT has said it does not target any particular level or direction for the baht and its gain over the past year is in line with regional peers.

Roong said the baht’s outperformance over the dollar index and its high correlation to gold is something the central bank has noticed and trying to address.

“We don’t try to stop people from being interested in gold, but we want them to do it in such a way that it doesn’t affect the volatility of the baht or make the baht have higher correlation” with gold, Roong said. BLOOMBERG