Bangkok: The baht may face further weakening despite its recent strengthening, influenced by record-high gold prices. Kasikorn Research Center’s analysis suggests that while the current surge in gold prices could bolster the baht temporarily, uncertainties and potential interest rate cuts in Thailand may lead to a weaker baht in 2025.
According to Thai News Agency, the global demand for gold plunged during the COVID-19 crisis but has since rebounded, driven by central banks’ increasing gold reserves. By the end of 2024, gold constituted 19.7% of international reserves, a significant rise from 12.2% in 2019. The demand for gold bars and coins has also surged as investors and consumers view gold as a valuable asset, contributing to a substantial increase in Thailand’s gold reserves, reaching 8.3% by late 2024.
Thai investors are exploring various investment channels, including online gold trading and gold futures, with Gold Online Futures contracts seeing a notable rise in open interest. The relationship between the USD/THB exchange rate and gold prices is inverse; as gold prices climb, the baht tends to appreciate. This relationship has resulted in increased volatility of the baht, which now ranges between 7.5-8.5%, higher than other Asian currencies but lower than the gold market’s volatility.
Kasikorn Research Center anticipates that rising global gold prices, which recently hit a record high of around 3,045 USD per ounce, will continue to support the baht in the short term. However, broader factors, including global geopolitical tensions and trade policies, may exert downward pressure on the baht. Despite short-term strengthening signals, the baht is expected to weaken due to persistent economic uncertainties and potential interest rate cuts in Thailand. Kasikorn Bank forecasts the baht to end 2025 at 35.50 per dollar.
