Gold market proving a tricky beast to tame

Last week, in a speech to the National Assembly, State Bank governor Nguyen Van Giau admitted that recent banking market turbulence was partly caused by the rush to buy gold for hoarding.

Three weeks ago, the Committee for National Fiscal Surveillance’s chairman, Le Duc Thuy, a former State Bank governor, called the State Bank’s gold market control measures “not sensible”.

The State Bank Circular 22/2010/TT-NHNN, dated October 29, banned local banks from converting their mobilised physical gold into currency and lending gold to gold plate manufacturers. It also banned the conversion of less than 30 per cent deposits in gold to currency to fund gold transactions, as local credit institutions had done for the past 10 years.

“This discouraged banks from mobilising gold from locals. Thus, the huge amount of physical gold in the public became ‘idle’. This is a waste,” said Thuy.

In fact, local banks previously mobilised physical gold from people then lent it to gold plate manufacturers or sold it for Vietnamese dong. This was a channel to temporarily increase mobilisation.

Thuy said the total amount of gold privately held by the public could reach 1,000 tonnes, equivalent to around $40 billion.

“Local people have a habit of buying physical gold. It is not easy to change this. We should encourage them to deposit it into the banking system. This would provide an additional source of funds to the banking system,” added Thuy.

Last week, at the National Assembly’s discussion, Giau said that the figure of  the above-mentioned 1,000 tonnes disclosed by the Committee for National Fiscal Surveillance was incorrect.

He explained to the National Assembly that the country had a net accumulative imported gold volume of 71 tonnes between 1998 and September, this year. The country imported around 339.8 tonnes of gold. The export figure was reportedly 268.8 tonnes of gold. Imported gold volume started increasing in 2003 and gold speculation began in 2009.

 “We are working out a new concrete regulation to manage the gold market,” said Giau.

A Customs Office report read that Vietnam spent $82 million on gold and jewelry imports in the first half of November. The figure was $95 million in imported gold, equivalent to three tonnes of gold and jewelry, in October.  

The State Bank reported that 23 local credit institutions had mobilised around 92.6 tonnes of gold, equivalent to VND73 trillion ($3.65 billion) by the end of September. The total credits in gold accounted for 60 per cent of the total deposits in gold.