The Bank of Thailand is tightening control over gold trading

The Bank of Thailand (BoT) is tightening control over gold trading to avoid destabilising the currency. 

BoT said that gold trading and related transactions conducted through mobile applications have become a major driver of foreign exchange flows. According to BoT Governor Vitai Ratanakorn, on days when the baht strengthens sharply, gold-related transactions can account for about half of the pressure pushing the currency higher.

From the start of the year, the Thai baht has strengthened by 9.1% against the U.S. dollar, making it one of Asia’s strongest-performing currencies. Thai authorities say that global factors with a negative impact, such as a weaker dollar, didn’t stop domestic gold trading flows from playing a significant role in currency movements.

Why is gold trading under a watch close?

Thailand has around 15 large gold traders, with a small number of major players handling a significant share of activity. On some days, the value of gold trading conducted through digital platforms has reached levels equivalent to roughly 40-50% of the country’s gross domestic product. During periods of sharp baht appreciation, these traders can account for nearly 20% of total foreign exchange market volume.

“We have the Foreign Exchange Act, but it doesn’t cover the gold trading business. There needs to be someone to regulate the gold trade,” Vitai said at a business forum.

What measures are being introduced

As part of the tightening process, the central bank has instructed commercial banks to conduct stricter checks on foreign exchange transactions linked to gold trading, including more thorough document verification. The central bank is also urging the Ministry of Finance to amend regulations to provide it with clearer oversight of gold-related foreign exchange flows.

Additionally, authorities have introduced stricter requirements for documenting the source of foreign currency inflows. The BoT has emphasized that these steps are intended to enhance transparency and mitigate volatility, not to impede legitimate capital flows.

Importantly for businesses and investors, the central bank has ruled out taxing gold transactions or imposing capital controls. Officials have stated that they aim to avoid drastic measures similar to those implemented in 2010, which led to market disruption.