Gold liquidity worsening in Vietnam as demand outpaces supply

Gold price in Vietnam rebounded on Friday after four consecutive falls, reaching 47.74-M Vietnamese Dong (VND) (US$2,289) per tael (1 tael equal to 1.2 ounces), along with the global trend that gained almost US$10 over the previous day to stand at US$1,769.80 oz.

However, the local gold price still remained at a higher level than the global price, with a price gap reaching 3.2-M VND ( US$153) per tael, much higher than the target at 400,000 VND (roughly US$19) set by the State Bank of Vietnam (SBV) Governor earlier this year. Insiders attributed that large disparity to a surging demand for gold nationwide.

In a recent Y 2012 macro-economy report, the Vietnamese National Assembly Economic Committee suggested Vietnam should develop a modern gold market to mobilize gold from the public to boost economic development and prevent gold trading practices that affect the exchange rate. It also pointed out that physical gold trading and speculation is the main cause for upheavals in the local gold and foreign exchange market.

Meanwhile the State Bank of Vietnam has released a circular, under which it clarified that the SBV will control the production of gold bars, and commercial banks and credit institutions will have to stop gold lending and mobilization by 25 November this year.

The dateline pushed those banks, who formerly were allowed to mobilize and lend gold, to face massive gold withdrawals from the gold depositors. To solve their problems those banks and institutions are trying to purchase more gold to improve their liquidity until that dateline. And this is the major reason that made the gold gap between domestic and global gold price become larger.

To cool down the local surging gold demand, the SBV allowed the Saigon Jewelry Company (SJC), who is entrusted by the SBV as the sole gold bar processor in Vietnam, to process 350,000 taels of Gold, equivalent to 13 tons, to fill in the local shortage of Gold supply. The amount included non-SJC Gold and deformed Gold of credit institutions and gold trading firms nationwide. But in fact the move has not yet met the thirst for Gold on the local market, and it was said that most of this huge Gold amount was either borrowed or purchased by commercial banks and credit institutions with low liquidity.

It is believed that Vietnamese individuals are owning as much as 400-500 tons of Gold, equivalent to about US$22-B and almost the same as the country’s foreign reserves, which stood at US$23-B as the end of the 1-H this year. The SBV said it has a plan to mobilize this huge gold source from the public, but so far there is not yet any feasible measure to realize that plan.

According to the Vietnam Gold Trading Association, “the scheme needs careful consideration of several factors, including macroeconomic stability, foreign exchange risks and interest of people, traders and the economy.”

Experts suggested the SBV import gold to deal with the gold liquidity problem as well as find ways to connect the local and the world gold markets so as to narrow the gap between them. Others said the SBV should issue gold certificates and establish a national gold trading floor.

The latest move by the SBV was made on Thursday when it ordered the Saigon Jewelry Company to produce an additional 4,000 taels of SJC-brand Gold, which will be used for exchange by the public from their non-SJC and deformed Gold, at a fee of 50,000 VND (US$2.5) for 1 tael.

But insiders are wondering if that move is helpful, while the longing for Gold in Vietnam seems to be endless.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.

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