Thailand’s gold – and how it outshines gold-pegged tokens
Investments in precious metals in the golden land
Gold belongs to Thai culture. Holding gold in Thailand is a traditional way of keeping savings. Ownership of physical gold is therefore highly common in the golden land. Siam had used gold as currency since its founding and Thailand is even today a gold importer. The private acquisition and sale of gold can be accomplished discreetly and inconspicuously. This makes the Thai jurisdiction to a reasonable holding location for even big gold investments.
Thai gold: Local gold shops act as the place of choice to buy, but also to sell gold based on its weight. Combined with pawn shops, this creates a complete gold economy without the need to hark back to Thailand’s official currency. Thai gold is typically 23.2 karat or .965/1.000 (96.5%) pure, the balance is a blend of copper and/or silver and/or zinc and/or manganese. Thai gold is very yellow and has sometimes a strangely unsettling effect on the Western observer. It is quite soft and therefore subject to wearing down fairly rapidly and subject to denting if knocked.
One troy ounce is equal to 31.1034768 grams, but Thai gold is traditionally measured and prized in “Baht” with one Baht bullion gold equal to 15.244 grams or 0.4901 troy ounces, and one baht of jewelry (fabricated) gold weighs 15.16 grams. The Baht weight should not be confused with Thailand’s official currency, the Thai paper Baht, although both terms have the same origin. The one baht weight unit can be further divided into four salueng or into 100 satang weight.
Dollar valuation: Recently, major gold traders have agreed to use the US dollar in order to limit volatility in using the Baht currency. In agreement with the Bank of Thailand, starting end of 2020, traders will use only the US$ for gold trading and settlement to mitigate FX foreign exchange volatility in the trade. It is Thailand’s central bank’s stance that with gold prices quoted in U.S. Dollars, import and export transactions made by precious metal dealers would no longer have any effect on the Thai Baht, with no need to convert from US$ to THB and vice versa. As a consequence, gold buyers might be required to exchange their Baht into foreign currency, which might require KYC and AML compliance.
Traditional investments in Thai gold vs. international standards
Golden China Town: The area around Yaowarat Road in Bangkok’s China Town is praised for its fair dealings. Thai jewelers charge a nominal fee only for the craftsmanship of creating a piece of jewelry in gold. The metal is usually not stamped or certified. Due to the unique nature of Thai bullions they can realistically only be bought and sold within Thailand – elsewhere, their value will be discounted.
Traditional gold coins like Krügerrand, Maple Leaf, American Gold Eagle or Wiener Philharmoniker enables internationalization of gold investments in Thailand. Although the acquisition process is different from gold jewelry, the export and international trade compensated for this inconvenience.
Gold investments follow the same “be your own bank (BYOB)” principle like Bitcoin. Therefore, it is not inappropriate to qualify gold as the “analog Bitcoin”. The practical handling, the investment purpose and the legal and tax treatment show significant similarities. Bitcoin, as well as gold, are the antidote to modern money theories while fiat money loses value till it crashes.
Legal considerations of buying and holding precious metals
Buying and owning gold is legitimate and legal. Thailand has no restrictions on cash transactions. However, practical limitations exist because the highest bank bill is the THB 1000 note. Anti-money laundering provisions have to be taken into consideration.
Regulators: Gold businesses are regulated by several agencies. Gold export/import by the Customs Department at the Ministry of Finance, gold shops and domestic gold trade by the Ministry of Commerce, US$-denominated gold trade by the Bank of Thailand, and gold futures products by the Securities and Exchange Commission. The labeling for gold shops is controlled by Thailand’s Consumer Protection Board under the Consumer Protection Act. This includes weight, gold percentage, and price. The price is controlled by the Gold Trader’s Association following market value.
Import and export restrictions create a serious hurdle. Undeclared gold in the hand luggage might be subject to a 100% customs rate plus fines. The export country might charge import duty and VAT as well.
Manufacturing of gold-ware is under List 2 Group 2 of the Foreign Business Act a business that could have an adverse effect on arts and culture, customs, and native manufacturing/handicrafts and, therefore, is reserved for Thai businesses. According to a Royal Decree 1973, updated in 2005, the profession as a goldsmith, silversmith, and other precious metalworks is prohibited to foreigners.
Taxation: Capital gains on gold are taxable – in theory. Gold wealth is subject to Thai inheritance taxes which kicks in for total taxable assets above THB 100 million.
Not as good as gold: Gold tokenization is no equal substitution to legal ownership in physical gold
A gold token, aka. gold-backed cryptocurrency or commodity finance token, is a stablecoin, pegged to the daily gold price. It comes with the promise that the tokens are backed by physical gold, although no token provides legal fractional ownership in an individual gold coin or bullet. The promise to keep the value of the physical gold at any time in-line with the issuance of gold tokens, cannot simply be checked for its veracity.
Physical risks: The token is just a synthetic representation of the real gold. The physical gold is located in a jurisdiction and subject to the local regulations including the risk of being taxed, seized or confiscated. Apart from this, it can be get lost for several reasons. The blockchain structure does not protect against these risks.
The true owner: The physical gold has a legal owner. This is typically a more or less reputable trust company. The token holder is not the legal owner, instead, he bears the counterparty risks of the trust company. This is a significant disadvantage compared with the situation of the legal owner of gold in a bank safe or vault managing company.
PUGNATORIUS Ltd. provided for an Asian asset management trust a #legalopinion on popular #gold #tokenization offerings, compared with physical gold ownership, disclosing unexpected counterparty, third-party ownership, tokenization, political, and gold redemption risks.
— Bangkok Lawyer (@bangkoklawyer) June 18, 2020
Token risks: Besides, the gold token holder has the risk that the smart contract fails its purpose and that governments use a backdoor to confiscate the token. Gold tokens can be declared illegal overnight and the token holding has no value anymore.
Gold enforcement or redemption risks: The gold token includes typically the right of the token holder to exchange the token under certain conditions and at a certain venue against gold. The token holder can’t execute these rights automatically. He might have to enforce them in civil litigation abroad that lasts for years and he takes the risk that such a late judgment can’t be successfully enforced.
Gold token as gold CFD: Gold token do not link to a specific fragment of gold, but just to the value and performance of physical gold. The term blockchain-based ownership should not mislead the investor into thinking that this is more than a tokenized contract for (gold) difference with all the typical CFD-risks involved. The redemption by the token holder, if any, is a simple acquisition of gold.
Professional services for gold investments
PUGNATORIUS Ltd. is a Bangkok-based specialist provider of bespoke transactional legal and tax advice in the corporate and property legal and taxation industry sectors. The law firm provides discreet and confidential legal and tax advice on the acquisition, sale, and possession of gold and other precious metals in Thailand and abroad.
The law firm offers efficient transaction support services on gold investments – strictly in compliance with Thai and international laws and tax rules.
Disclaimer: A little knowledge is a dangerous thing. This low-resolution high-level outlook constitutes neither legal advice nor an attorney-client relationship. Secure your gold in paradise.
The Thai Gold Traders Association, World Gold Council, Thailand Futures Exchange (TFEX), TFEX Gold Futures Trading Volume, LBMA Gold Price,YLG Bullion & Futures, Hua Seng Heng Gold Futures, MTS Gold Futures, TC Ausiris Futures, Ausiris Futures Co Ltd AFC, YLG Bullion & Futures Co Ltd YLG, MTS Gold Futures Co Ltd MTSGF, Hua Seng Heng Gold Futures Co Ltd HGF, Classic Gold Futures Co Ltd CGF, Globlex Securities Company Limited GBS, KT ZMICO Securities Company Limited KTZ, KGI Securities (Thailand) Public Company Limited KGI, Thanachart Securities Public Company Limited TNS, MTSGF – MTS Gold Futures, MBKET – Maybank Kim Eng Securities (Thailand) Co Ltd, PHATR – Phatra Securities Public Co Ltd., HGF – Hua Seng Heng Gold Futures Co Ltd., KTZ – KT ZMICO Securities Co Ltd, KGI – KGI Securities (Thailand) Co Ltd, YLG Bullion, Yoo Lim Gold Factory Ltd., MTS Gold, Ausiris Co, part of the Baan Chang Thong Group, ,KTAM Gold ETF Tracker – GLD, ThaiDEX Gold ETF – GOLD99, K GOLD ETF – KG965, Bualuang Chay Gold ETF – BCHAY, Thanachart Gold ETF – TGOLDETF. Evergold (EVG), PAX Gold (PAXG), Tether Gold (XAUT), DigixGlobal (DGX), Meld Gold by Algorand, Perth Mint Gold Token (PMGT)