Thailand launches 10-baht weight gold futures

Thailand’s TFEX (The Thailand Futures Exchange) on Monday started trade in new 10-baht weight gold futures contracts after starting trade in 50-baht weight contracts in 2009.

A total of 1,089 contracts were traded, including 697 deals of GF10Q10 contracts maturing in August. Total trade on the TFEX Monday was 12,933 contracts, with over half representing trade in SET50 index futures.

Trading hours for gold futures should also be extended to 11 pm to be in line with those of foreign markets. Extended trading hours could allow investors to cut their losses in time and help reduce the value of any losses if the gold market is highly volatile.

Thailand’s Deputy Finance Minister Pradit Pataraprasit said the launch of the 10-baht-weight gold futures contracts would serve as an alternative for investors.

Gold futures prices will reflect the speculations of parties related to future prices of gold, thus helping entrepreneurs in the production and export industries to carry out operational plans efficiently, said Pradit.

The trading of 50-baht-weight gold futures contracts averaged 3,105 contracts a day in the first seven months of this year, up by 122% from the end of last year. The highest number traded was 8,496 contracts on Feb 5.

According to Thailand’s Gold Traders Association, gold retailers could start feeling the pinch in four months from the launch of mini gold futures, with an impact expected sooner on already-sluggish sales in the physical gold market.

However, the Association warned that the smaller-value contracts would draw many retail investors away from physical gold to the potentially riskier derivatives market.

Association also warned investors to be cautious in trading the futures, as gold prices now experience more than 10% volatility in daily trading. Investors should conduct a thorough study to avoid risks.

Brokers could also face risk if clients do not increase their account reserves, it said.

The TFEX plans to introduce silver bar futures contracts this year, while interest rate futures based on five-year government bonds are expected to start trading in October. Oil futures will be introduced early next year and currency exchange futures in early 2012.

The Stock Exchange of Thailand will discuss with the Bank of Thailand about speeding up trading of currency exchange futures. At present, the TFEX offers contracts based on single stocks, SET 50 index futures and options and gold.

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