Gold in for a rollercoaster ride

This is the Ministry of Industry and Trade’s (MoIT) forecast which aims to describe how the global and domestic financial situation will affect Vietnam economy in general and import-export in particular.

According to an MoIT report, the gold market will be affected by capital injection to stimulate economic recovery and growth of the troubled global economy. “How much gold price increases will depend on the effectiveness of the stimulus packages recently launched by foreign countries’ central banks.”

The MoIT also emphasised the impact of the climbing Consumer Price Index (CPI) because of seasonal demand for food increase amid limited supplies. Moreover, it is believed that the banking system restructuring process will be implemented more drastically in the fourth quarter, with the possible impact of  “shock events” on the financial market, creating a fluctuation in gold price.

According to Pham Do Chi, a former IMF economist, after the arrest of Asian Commercial Bank CEO Ly Xuan Hai and the bank’s co-founder and former vice chairman Nguyen Duc Kien in August, the gold price jumped to VND45 million ($2,160) per tael, opening an upward trend since then until now. The gold price increased continuously in September and reached VND48 million ($2,305) per tael, widening the gap between the domestic and international gold price to VND3 million ($144) per tael.  

But the MoIT also emphasised that the State Bank would continue to maintain strict control of the domestic gold market, including a limit on gold deposits and lending activities. “This has raised hopes that it may be difficult for the domestic gold price to increase sharply in the coming months, and gold price could hover VND47-48 million ($2,256-$2,305) per tael.”

The central bank has assumed the monopoly in making bullion gold and chosen SJC the national gold bar brand name. The MoIT pointed out that the government policies regarding gold  carried risks. “The long-time gap between domestic and international gold price will encourage illegal imports of gold,” the report noted. “Moreover, SJC becoming the national gold brand name will increase activities to legalise smuggled gold  by making fake SJC gold to circulate on the market and make the market  more complicated.”  

Some experts said that the termination of short-term gold-denominated certificates by credit institutions by November 25, 2012 would make the gold price continue to increase due to low supply. “Many banks sold customers’ gold deposits to have VND to lend at high rates. Now the gold price increases sharply, banks must buy gold to balance their position or to return gold to customers, making demand increase sharply in the final months of this year,” said Nguyen Dai Lai, former deputy head of the State Bank’s banking strategy department.

Last week, the State Bank issued a draft circular to replace Circular No. 04/2012/TT-NHNN dated March 8, 2012 on the trustees for credit institutions. Accordingly, the draft circular does not allow credit institutions, branches of foreign banks to implement trusting activities on gold and foreign currencies to ensure the safety of two markets.