Gold market proves a major conundrum

The state’s monopoly in gold bar production and only SJC gold bars allowed in market are believed to stand behind the widening gap in domestic and world market gold prices.

Banking expert Nguyen Dai Lai said the gap between the two prices was being skewed when one SJC branded gold tael is VND2.5 million ($120) more expensive than world prices.

The difference in prices is on the back of sharply rising demands for gold from banks. That was because scores of banks in the past year sold gold deposits, now they have to buy back to repay customers or balance their ‘gold positions’.  

It was said that more than a year ago five banks (known as G5 group which consists of ACB, DongA Bank, Techcombank, Eximbank and Sacombank) got the right to mobilise and sell gold with a rate of 40 per cent out of their total mobilised gold for market stabilisation, meaning for every 1,000 mobilised taels banks in G5 group could sell out 400 taels.

At that time deposits in dong currency reportedly fetched 18-20 per cent interest rate per year versus 25-26 per cent per year lending rate, so that converting gold into dong currency to deposit at only credit institutions could bring marginal profits to banks.

To put gold prices on an even keel, Lai assumed the State Bank (SBV) only took control of gold bullion, which constitutes state foreign currency reserve ensuring it meets national and international standards.
The gold price and value should be based on gold content, whereas prejudices against non-SJC gold kinds should be abolished. Besides, it is important to remove gold monopoly regime and respect market rules.

Central Institute for Economic Management deputy director Vo Tri Thanh said problems arose shortly after SBV monopolised gold bar production. Thanh argued doing so required SBV to be flexible in moderating production parallel to close supervision, but these two factors were not ensured.

In light of Decree 24/2012/ND-CP on gold market management the gold price in the domestic market must fine-tune with that of the world market, but there is a big gap. Banks’ gold positions have often been imbalanced in the past months with banks scaling up buying.
Besides, at this time guiding circular to Decree 24 implementation is yet to be enacted by central bank.

Economist Pham Do Chi agreed that the current big price gap was because commercial banks, particularly those in G5 group, scaled up buying to balance their gold position since in the past they sold out big volumes of gold deposits under short-selling for market stabilisation.

Besides, Chi suggested the central bank hold a monopoly in raising gold from the community, but not in gold bar production.

“Gold in the community is a big asset to the economy. It is a secured asset even in the context of home currency devaluation. Thereby, one should hold gold in the investment portfolio,” Chi said, adding that the gold price would keep upward trend in the long term and was forecast to surpass $2,400 per ounce within the next two years.