VIETNAM - Gold market stabilization program fails

by lexie Fri Dec 23, 2011 6:24 pm

Last update 23/12/2011 07:40:00 AM (GMT+7)

Gold market stabilization program fails

VietNamNet Bridge – The State Bank of Vietnam has applied a series of measures to stabilize the gold prices. However, to date, the domestic price is still higher by 3 million dong per tael than the world’s price.

In the eyes of the State Bank of Vietnam, with such a big gap between the domestic and international prices, the domestic market has been driven by the speculation. The program of the central bank to stabilize the gold market which has been running since October has not brought the desired effects.

Market price still decided by speculators

The Circular No 32 allows five commercial banks to convert 40% of gold into cash to supplement the supply of gold on the market, and open accounts overseas to insure the gold price fluctuation risks. The group of five banks, together with one goldsmith company – SJC – have been allowed to sell gold to stabilize the market at the SJC’s price.

Since the day the circular 32 was issued on October 6, the gap between the world’s and the domestic prices once was narrowed to 400,000 dong per tael – the expected level by commercial banks. However, the gap later has been enlarged to 3 million dong per tael.

After submitting to the government the draft decree on gold business activities management, the State Bank on December 17 drew up the plan to stabilize the gold market, in which it emphasizes that domestic resources would be used for that purpose.

Sources say that the team of compiling the project on using domestic sources to stabilize the domestic market will be headed by the Director of the Foreign Exchange Department of the central bank in person.

Three days after the team was set up, on December 20, the domestic gold price was quoted at 43.1-43.5 million dong per tael (purchase and sale). Meanwhile, the gold price with prompt deliveries in the European market was traded at 1602.80-1603.80 dollars per ounce.

As such, the domestic price is 2.89 million dong per tael higher than the world’s price, not including fee, if considering the exchange rate quoted by Vietcombank. Meanwhile, the price gap would be 2.19 million dong per tael if considering the black market’s exchange rate.

Prior to that, the Governor of the State Bank of Vietnam said that the acceptable price gap is 400,000 dong per tael, while if the gap is higher than 400,000 dong, this means that the gold market is still driven by speculation.

What’s to blame?

When the Circular No 32 was promulgated, a question was raised that if the volume of 40 percent of the gold in cash balance of the five commercial banks and SJC was big enough to stabilize the market.

At that time, some analysts said that in order to stabilize the market, the central bank needs to know exactly how much the demand and supply was, so as to prescribe a medicine for the market. It was easy to find out the figures about the supply, because the central bank could ask commercial banks to report about that. However, it was very difficult to find out the demand from people.

However, as the governor of the State Bank said, the Vietnamese market has been controlled by the speculation and the habit of following the crowds in making investment. And in the context of high inflation, people would still want to hoard gold, considering this the safest shelter for them to protect their assets.

And this always happens that when the world’s price increases, the price gap gets narrower, but when the world’s price decreases, the gap gets larger.

http://english.vietnamnet.vn/en/business/16883/gold-market-stabilization-program-fails.html

by cashinhand Fri Dec 23, 2011 7:01 pm

Someone help me please... I understand enough of this to I dont understand...

VIETNAM - Gold market stabilization program fails

VIETNAM - Gold market stabilization program fails

Re: VIETNAM - Gold market stabilization program fails