Expert suggests SBV loosen gold grip

The Vietnam Gold Trade Association’s general secretary Dinh Nho Bang sat down with VIR to discuss the importance of developing a stronger gold jewelry market and how authorities will manage the gold trade.

The State Bank (SBV) suspended gold bidding sessions last week. Do you think the central bank should stop selling gold, at least in the short-term?

It is simply impossible to stop selling gold, as the SBV acts as the only distributor to businesses and banks. We don’t need to stop selling gold as much as we need to implement policies that secure the market.

Our gold purchases must be done with care, but selling is simple; it is just a matter of importing the product and converting it into SJC gold bars before selling.

In terms of our purchasing gold, caution is needed, particularly with price volatility in the global market and Vietnam’s domestic price exceeding that of the world standard by $143.

Has the SBV achieved its goal of getting the bullion market under control after more than a year governmental Decree 24/2012/ND-CP on gold business management was enforced?

Decree 24 was the right step forward, as Vietnam’s gold trade is always very active. However, efforts to reduce trade and move the general economy away from its focus on gold were not successful. Since the law was passed, the SBV has distributed several tonnes of gold into the market every week in the recent months. Despite the large supply girth, Vietnam’s gold price still far exceeds that of the rest of the world, mostly due to global economic conditions.

What are your recommendations to mitigate domestic gold fever?

The gold market can be divided into two: gold jewelry and gold bars. As Vietnamese have become accustomed to hoarding gold, businesses mainly trade in bars - easier to transport, store, and trade. However, the government’s Decree 24 prohibited businesses from producing gold bars. Gold jewelry is another option, though it is currently limited as producers are not allowed to import gold for production and instead have to source material at much higher prices from the marketplace.

Why have jewelry-makers struggled with the domestic marketplace?

The first problem is quality control. Gold sources often fail to provide consistent, high-quality product. Also, high domestic prices make it very difficult for local producers to compete against international products.

Another major problem is that if firms were allowed to buy directly from the SBV, it may cause a demand spike that could challenge market and forex management authorities with increased smuggling and resultant exchange rate issues on the black market. Encouraging jewel producers to import their raw product is a much better option given current conditions.

Will jewel makers importing gold for production impact the exchange rate?

The SBV can manage gold sources production firms import based on their production

Also, the gold needed for jewelry production is only around 20 tonnes a year. That will not affect the exchange rate. This will help mitigate the situation as businesses can access their gold supply independently and the state will not have to spend a round sum on importing gold.