Following the subsidence in market volatility, the Thai baht has resumed its appreciation since April, in conjunction with the sharp rise in gold prices. This phenomenon is, in part, attributable to a unique aspect of Thai culture, where gold is highly valued as an investment asset and a store of value. Many Thai households invest in physical gold as personal reserves and sell down during economic downturns or when gold prices rise. The Thai baht strengthens when the US dollar proceeds from the subsequent gold sales in international markets are converted back to domestic currency. This note analyzes the relationship between the Thai baht and gold prices, and what it means for the currency going forward. Other potentially more important factors affecting the baht are also discussed.
Market Insights