Traders: Gold-D limited by process

Traders: Gold-D limited by process

Gold-D, a new futures contract product trading on Thailand Futures Exchange (TFEX), has not been active because of the complicated trading process, pricing calculation, physical delivery, and the collection of the value-added tax (VAT) and withholding tax, says the Gold Traders Association.

Jitti Tangsithpakdi, president of the association, said Gold-D trading volume has been slim since it started three months ago. Factors affecting its activity include TFEX's trading intermission of two or three periods, during which trading was discontinued, resulting in a loss of opportunity for investors to lock in profit or cut losses, especially during the evening break from 4.30pm-7pm.

Markets in Singapore and Hong Kong have no trading intermissions as they allow gold spot trading for 24 hours and also offer trading in US dollars.

Gold-D is a physical settlement gold futures contract based on gold bars with 99.99% purity. Physical delivery is required upon contract expiry, with the contracts being quoted in US dollars but settled in baht. It was launched on the TFEX on Sept 4.

Mr Jitti said Gold-D is a global financial product and many exchanges have offered 24-hour trading quoted in US dollars, generating high liquidity trading.

The trading commission fee for Gold-D under futures contract on the TFEX is also higher than that of regional markets, he said.

Since the trading process of Gold-D is quite complicated, trading volume, which gold brokers earlier expected to increase by 30 times from the previous gold futures trading, has fallen short of the target as Gold-D trades on average 300-1,000 contracts per day, said Mr Jitti.

"Gold-D still cannot compete with other gold spot trading in regional markets," he said.

TFEX gold brokers had hoped the launch of Gold-D would make Thailand a regional gold trading hub in terms of trading volume.

"Our rules and regulations are still restricted, subsequently causing trade to be slim," said Mr Jitti.

MTS Gold president Kritcharat Hirunyasiri said Gold-D was formed as a futures contract, the trading of which is a more complicated process than gold spot.

This makes the Gold-D price a little more expensive than that of gold spot, he said.

"[Gold-D] does not reflect real-time gold prices and investors do not like the complicated structure. Investors will opt for markets in Singapore and Hong Kong because those markets have foreign exchange costs and allow trading on a 24-hour basis," said Mr Kritcharat.

"For example, if the price of Gold-D is US$1,262 [41,164 baht] per ounce, but the price of gold spot is $1,260, investors do not understand why they would buy Gold-D through a futures contract."

He said the first series of Gold-D expired on Nov 30 and investors have to roll over to the next series, which will expire at the end of February 2018, because if they close their trading positions on Nov 30, they will have to pay both the VAT and the 15% withholding tax on capital gains.

"Under the current trading regulations of Gold-D, we still cannot compete with the regional markets as there are many obstacles such as physical delivery of gold upon the contract's expiration date, the complicated process of futures contract trading, and the foreign exchange cost when converting the dollar into the baht upon closing an investment position," said Mr Kritcharat.

"The most important obstacle is taxation."

TFEX managing director Rinjai Chakornpipat said the physical delivery process at the end of the day or the next day is in the regulatory amendment process, which will take time to be completed.

"Normally, a new product will take time for market participants to study the trading process and have an understanding of it," said Ms Rinjai.

TFEX and the market regulator hope to solve the problem and develop different financial products, including simplifying the trading process in order to increase competitiveness."

TFEX has three gold derivatives products: gold futures, 10-baht gold futures weighted at 152.44 grammes, and the latest offering Gold-D.

In November, the cabinet approved tax breaks for gold futures traders to promote trading and protect investors in the market, but they have not been put into effect yet.

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