Gold trading floor plan cops flak

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>> Gold makes slight correction

>> Gold surges 2 per cent to record on economic fears

The national gold trading floor, proposed by the Vietnam Gold Business Association and several experts with the aim of removing the gap between the world and domestic prices and preventing gold "fever", has stirred controversy.

In a letter sent to the SBV on Tuesday, VAFI said the gold trading floor would encourage the flow of cash into gold, which undermined the strength of the national currency.

According to the association, about 99 per cent of individual investors suffered losses when trading gold via accounts.

Nguyen Hoang Hai, general secretary of VAFI, said that in other countries, gold trading floors were set up as part of commodities exchanges, in which groups, organisations and companies operate healthily, unlike individual investors in Vietnam.

The association also disagreed with the SBV's proposal of allowing commercial banks to borrow gold from citizens which they would then in turn loan to individuals or businesses.

Hai said that scrupulous businesses would not choose to add capital by borrowing gold and then selling it for Vietnamese dong as the method was too dangerous in the context of fluctuating global and domestic gold prices.

The proposal would also cause extreme speculation or even market chaos.

VAFI also requested that the central bank should continues to ban gold bar trading by individuals, with only authorised agencies allowed to buy gold bullion from citizens.

Hai added that the previous draft decree had helped stabilise the gold market by reducing gold trading transactions by 70 per cent while removing major gold speculation.

Gold export and import quotas needed to be removed in order for the domestic gold market to operate more effectively, VAFI said.

In the past few weeks, continued increases in gold prices both inside and outside the country triggered a frenzy of buying and selling by individual investors, causing a chaotic situation on the domestic gold market.

The world spot gold price hit a record $1,817 per ounce last week on the London Bullion Market.

At the same time, the domestic gold price climbed to a record VND46.3 million ($2,226) per tael (one tael is equivalent to 1.2 ounces).

Speculators had taken advantages of the fluctuating gold prices, raising the domestic price to more than VND1 million ($50) per tael than the world price.

The chaotic situation had also impacted adversely on the forex market, creating tensions in foreign currency supply and demand.

According to VAFI, gold trading was considered a very sensitive field which could affect national monetary security and cause forex fluctuations, inflation and lower public confidence in state management of the sector.