Gold's record-setting rally quietly turned an Asian currency into this year's breakout trade

• Gold's surge has driven the Thai baht up 10% this year to its strongest level since June 2021.
• Thailand's role as a gold trading hub has turned record prices into FX inflows powering the baht.
• Officials plan a briefing on currency moves as the strong baht squeezes exports and trade.

Gold's blistering rally this year hasn't stayed confined to commodities markets.

One of the biggest and most unexpected beneficiaries has been the Thai baht, which has emerged as one of the region's breakout currencies even as Thailand's domestic economy continues to struggle.

The Thai baht has surged 10% against the dollar this year to its strongest level since June 2021 on the back of gold's record-breaking streak.

Spot gold is trading around $4,485 per troy ounce, up about 70% so far this year, driven by a powerful mix of central bank demand, geopolitical uncertainty, and Fed monetary easing.

On Monday, the spot gold price extended its record-breaking streak this year, hitting a record high of 4,497.55 per ounce, according to LSEG data.

The baht's rally looks puzzling when viewed through a domestic lens. Thailand's benchmark SET stock index is about 9% lower year-to-date, reflecting economic challenges.

"With woefully weak tourism, and fragile household confidence offsetting wider exports boost amidst the border clash with Cambodia, THB's surge is mainly derived from its exceptional (positive) correlation with Gold's glitter rather than economic shine proper," wrote Vishnu Varathan, Mizuho's Asia macro research head, excluding Japan, on Tuesday.

Under normal circumstances, those challenges would weigh on the currency. This year, gold has overwhelmed them.

The yellow metal is a traditional store of wealth for Thais, with the country ranking among Asia's top consumers after China and India.

That dominance is boosting the baht because Thailand is an active gold trading market.

As dollar-denominated international gold prices surge, related capital flows such as export receipts tend to lift demand for the baht after currency conversion.

As dollar-denominated gold prices surged this year, Thailand's gold exports jumped 52% to $11.6 billion from January through October.

The baht's strength has stoked concerns among policymakers.

Last week, Thai Finance Minister Ekniti Nitithanprapas said the baht was too strong and was hurting the country's export-reliant economy.

Vital Ratanakorn, Thailand's central bank governor, said the country's gold trade should be regulated.

Thailand's finance ministry announced on Tuesday that its central bank, finance ministry, and securities regulator would hold a briefing about the baht later in the day.