Gold spot likely to be created in stock market

The GETF would be a tool for financial institutions and investors to trade gold and make profits from bullion without the need to keep physical gold bars or open a futures trading account.

Thirachai Phuvanatnaranubala, secretarygeneral of the Securities and Exchange Commission (SEC), told The Nation that the securities watchdog was preparing to launch the GETF.

It will soon talk to physicalgold traders about the idea, hoping to convince them to participate in the GETF following the successful launch of goldfutures trading earlier this year.

ETFs are investment tools traded on the stock market with characteristics very similar to those of shares. An ETF holds assets like stocks or bonds - or gold bars for a GETF - at around the same prices as the value of the underlying assets during the trading day.

If launched, individual investors would be able to trade gold in the spot market in a similar style to trading stocks in the stock exchange. At present, Thai investors wishing to trade gold in the spot market can only deal in physical bars with physicalgold traders established here.

The GETF would initially start as a feeder fund and be fully backed by gold bars, which would be both deposited and insured. Physicalgold traders would take responsibility for storing the gold that backed the GETF. A custodian system for the GETF must be established first.

Thirachai said the reference price would be the traditional reference price of gold from the London market, adjusted to the Thai flavour by changing from 99.9percent pure gold to 96.5 per cent before foreignexchange adjustment. The price quoted in the GETF would be a spot price.

This would finally replace physicalgold traders' daily referenceprice quotation, which has long been set by major Thai physicalgold traders.

A source close to the matter said the SEC's planned move might not be easy to implement, as it could be opposed by physicalgold traders whose core business would be affected by the GETF.

However, the SEC said it would ask these traders to help set up the overall system in the early stages.

Pichaya Phisuthikul, secretarygeneral of the Gold Traders Association of Thailand, said the association would quote the local gold price at around 8.309am. It would consider the price in the New York and in three Asian markets - Hong Kong, Tokyo and Singapore - the exchange rate of the US dollar in the morning and the trading premium of the day charged by brokers in gold trading with foreign markets.

The demand and supply of gold in the country would also be considered, he said.

Suvarn Valaisathien, president of the Saver Club and a former deputy commerce minister, said the GETF would be good for investors, as they would get realtime tracking prices of spot gold, which current investors in gold funds cannot access. This would extend investors' advantage on goldprice monitoring.

He predicted the GETF would attract more investors from the physicalgold trading market.

GETFs are already traded on major stock exchanges like Zurich, Mumbai, London, Paris and New York. The first fund was launched in March 2003 on the Australian Stock Exchange.