Gold bars of the Sai Gon Jewelry Co. The widening gap between global and domestic gold prices is causing alarm.
According to Kitco, last Thursday the gold price on the global market stood at $1,557 per ounce (equivalent to VND 39.3 million per tael).
Meanwhile the domestic gold price was between VND44.97 million ($2,160)and 45.17 million ($2,640) per tael.
The difference was about VND5.5 million per tael.
On Saturday, the gold price in HCM City was between VND 44.92 and 45.07 million per tael while the rate in Ha Noi was between VND 44.96.1 and 45.07 million.
The gap between the global and domestic gold prices was reduced but very modest, standing at VND4.9 million per tael. The gap between the global and domestic gold prices was partly due to demand.
Gold bidding to be tested
The State Bank of Viet Nam will conduct a gold bidding trial with the participation of banks and businesses, said Nguyen Quang Huy, director of the Foreign Exchange Department of the State Bank.
The announcement was made during a signing ceremony for a gold bar casting contract between the State Bank (SBV) and the Saigon Jewellery Company Limited (SJC).
He said the SBV was preparing to participate in the gold market as a gold seller with a view to narrowing the gap between global and domestic gold prices.
This is the first time the central bank will conduct a gold auction.
Huy said that the signing of this contract was an important step for the central bank’s gold bullion production.
In the next few years, the bank plans to sell its gold bars in order to stabilise the gold market.
Le Hung Dung, JSC Chairman, said that after the signing, the domestic gold price would be closer to the global price.
SBV would become a big business, he added.
In his view, strengthened resources and an improved legal system would help further narrow the price gap.
The central bank confirmed that the contract would help it actively produce gold bullions so as to better regulate the local gold market.
Under the contract, processing of gold bullions will be closely monitored, from the control of mold to gold delivery.
The State Bank has submitted a drafted Decision of the Prime Minister on the purchase and sale of gold bars on the domestic gold market and has promptly completed the necessary regulations in order to join the efforts to stabilise the local gold market.
Experts said negative information regarding the domestic economy, including the possibility of petroleum price increases and foreign exchange movements, had encouraged more investors to buy gold.
However, gold trading enterprises were not keen to cut gold prices even when the global price fell sharply.
Senior economic expert Nguyen Minh Phong told the Dau Tu newspaper that it was the monopoly in trading gold that caused the demand to exceed supply, thus causing chaos in the domestic market.
The gap between the global and domestic gold prices not only caused losses for domestic investors but also affected the forex rate between the Vietnamese dong and the US dollar.
In fact, late last week the forex rate between the dong and the US dollar reached VND21,000 per dollar, compared to VND20.800 per dollar that had been the rate for nearly a year.
As a result, the central bank had to ask commercial banks to strengthen selling of the US dollar to bring the forex rate to the old level.
A director of a gold trading company said the big gap between the global and domestic gold prices encouraged speculators to buy the greenback to import gold bullion to make a profit.
This meant that if the gold price difference was not reduced, it would increase the forex rate again, he said.
Nguyen Duc Thanh, director of the Viet Nam Centre for Economics and Policy Research, said the big difference in gold prices showed the limitations of the nation’s gold management policies.
An official of the central bank also admitted the difference in gold prices was caused by a shortage of gold bullion.
To solve the problem, the Central Bank had to allow several commercial banks, Dong A, Viet A, Sacombank and Techcombank, to temporarily export non-SJC gold bars and import gold materials to cast SJC bullion, he said.
However, this was only a temporarily solution.
The Central Bank said the difference in the gold price would end, along with the instability in the gold market, when it (the bank) was officially allowed to trade in the gold market with gold trading organisations. Then selling and buying prices would be decided by the bank governor.
When the market fluctuated, the Central Bank could then move to reduce the difference in the global and domestic gold prices.
Dinh Nho Bang, general secretary of the Viet NamNam Gold Business Association, said the bank’s interjection in the gold market was necessary but it should not be too invasive.
Central banks in other parts of the world did not directly become involved in gold trading and fixing gold prices, he said.
Do Minh Phu, chairman of the DOJI Gold and Gems Group agreed. He said when the gap between the global and domestic gold prices exceeded VND500,000 to 700,000 per tael, the Central Bank should get involved.