Vietnam - Domestic gold overpriced

September 25, 2011


Domestic gold overpriced


Domestic gold has been priced some VND3.2 million ($153.2) a tael higher than its world’s counterpart. At the unofficial forex rate of VND21,200-21,300 a dollar, the price should be at VND42.55 million a tael.


But at the official rate of VND20,834 a dollar, the price gap has been widened to some VND4 million a tael.


The closing world gold price on Saturday dropped some $83 an ounce, or VND2 million a tael, while its domestic peer only retreated by VND900,000 a tael.


The gap widening has started soon after the central bank licensed some domestic gold traders to import 4 more tons of gold in an effort to close the price gap.

Loss cutting


Many gold traders said that the phenomenon has been simply caused by the gap between supply and demand, but an expert told Tuoi Tre that it is just a move to cover losses.


Except for some large enterprises, many gold traders had inked deals to buy gold when it hit $1,800 an ounce on speculation that price will shoot up, but as it arrived in Vietnam, the world price has plunged by $150 an ounce, or VND3.8 million a tael, he said.


So, they have joined forces in holding the price at such a rate as long as scarcity persists and demand is still rising, he added.


Saigon Jewelry Co, Vietnam’s biggest gold trader, can only supply the market with some hundreds of taels a day due to its limited capacity.


Previously, gold firms could borrow gold from banks for selling as soon as they got the licenses, but it’s impossible now with the effectiveness of Circular 22 from the central bank, said Nguyen Ngoc Que Chi, general manager of Sacombank Jewelry Co (SBJ).


Thus, except for some firms have a certain amount of inventory or can borrow from their partners, many others had to wait for the imports, while the delivery of foreign partners has been slowed down recently.


Previously, it took 2-3 days for the delivery after the deals, but the time span has been widened to almost a week now, she said.


The longer it takes, the more fees, including lending rates, being added to the selling prices to customers, she added.

Unsolved quest


Many experts say the fastest way to solve the problem is the central bank should continue to offer more import quotas for gold continues.


However, many others said unless the core problem in policymaking has been resolved, the phenomenon just keeps on.


According to deputy general manager of a gold company under a commercial bank, the State Bank of Vietnam should only license those who have big inventories so that market intervention will take effect as soon as possible.


The inventories at commercial banks should also be deployed as a market intervention tool for gold traders as soon as they get the licenses.


So, the central bank should amend Circular 22, allowing big gold traders to borrow gold from banks for immediate market intervention, he said.


http://www.vietfinancenews.com/2011/09/domestic-gold-overpriced.html#more

so can we anticipate movement of the Dong - higher or lower?