Investors retreating from gold market

Investors retreating from gold market

VietFinanceNews.com - Feeling anxious about the liquidity of the gold market when the new decree on gold management takes effects as of May 25, a lot of people are rushing to sell gold.

In the last months of 2011, people jostled with each other at gold shops for buying gold, when the domestic price was 3-4 million dong per tael higher than the world price. Meanwhile, since April 2012, the precious metal trading has become quieter.

Investors retreat from gold market

Under the decree, from May 25, 2012, the use of gold in payment will be considered a behavior of violating the laws.

The domestic gold prices have been fluctuating regularly in the last few days, even though the new decree would only take effect in some 20 days. Early on the morning of May 4, the gold price dropped by 200,000 dong per tael to 42.25-42.45 million dong per tael, though the world price rose by 0.1 percent at the same time to 1636 dollars per ounce.

The gold price performance on May 4 continued the downward trend started on May 2, 3 and 4, though the world price has been recovering.

According to Nguyen Cong Tuong, a senior executive of the Saigon Jewelry Company SJC, when the gold price decreased to the 43 million dong per tael threshold, people have begun selling gold in large quantities. As there are more sellers than buyers, the domestic gold prices have been decreasing, going contrary to the world price.

The fact that gold keepers sell gold in large quantities (thousands of taels) shows that investors have begun to withdraw from the gold market, while people believe that it would be better not to keep gold as assets.

Dang Thanh Minh, a gold seller at SJC on May 4 fears it would be more difficult to sell gold after some weeks, when the new decree takes effect. He does not think that the gold price would regain the 43 million dong per tael threshold; therefore, he decided to sell gold at a loss.

Black gold market?

The new decree stipulates that from May 25, the payment in gold will terminate. The State will have the exclusive right for trading gold, while commercial banks will act as its agents.

For the last many years, Vietnamese people have the habit of hoarding gold, keeping gold not only for saving, but using gold in making payment. So, where will the gold go after May 25, when gold is no more used in payment?

Nguyen Trung Anh, Deputy General Director of Vina Gold, said there could be two scenarios. In case the enforcement of the new decree is not too strict, a black gold market would appear – the thing that is happening with the foreign currency market. In the past, Vietnam once had the “Vuon Chuoi gold market” in 1980s.

Meanwhile, if the central bank keeps loosened management, people would trade blank gold rings instead of bullion gold.

According to Tran Thanh Hai, General Director of VGB, though gold is not used in payment in the world, the precious metal still has been favored by people. It could become a safe shelter for people amid economic and political certainties. And Vietnam is not an exception.

The domestic gold market performance after May 25 proves to be unpredictable.

“There’s still high demand for bullion gold in the society, while gold sales agents cannot reach out to remote areas. I am afraid that the underground market would form up. If so, it would be even more difficult for the central bank to manage the gold black market than dollar black market, because dollar is less popular than gold,” Hai said.

One dollar is equal to 21,000 Vietnam dong.

http://www.vietfinancenews.com/2012/05/investors-retreating-from-gold-market.html