Shining gold

Late last week, the price of gold in the world market took a plunge following good news from the US’ labour market.

Gold price in the domestic market, however, continued surging albeit the State Bank (SBV) pumped nearly 120,000 gold taels into the market through its three bidding sessions last week.

The gap in the domestic and world market price inched up to around VND6.5 million ($310) per tael later last week.

Economists said the gold price situation at this time was ‘perilous’ to local investors.

Director of the Business Development Institute Dr. Le Xuan Nghia assumed the global gold price would remain in downward trend in the long-term since rebound was the leading trend in both local and world economy.

“The global gold price will dip further, but in the short-term it may go up and down. Thereby, in my view selling is a smart decision at this point of time,” said Nghia.

Nghia said gold price divergences in the world and domestic market as currently seen came in part due to several banks’ inability to close their god position, particularly gold outstanding loan balances, before July 30, 2013 as required by the SBV.

“Besides, some other low-liquidity banks still have strong demands for buying in gold bullions to cover gold deficiencies,” Nghia said.

The director of a gold trading company, however, said SBV’s three gold bidding sessions last week basically helped banks finalise closing their gold accounts. Thereby, the price disparity would alleviate this week if the SBV continues to pump gold into the market.

In this respect, economic expert Dr. Vu Dinh Anh said the [domestic and world] gold price disparity would depend on two factors. First, the SBV set gold bid prices and second, that is the market supply and demand situation.

“If the market demand was immense, the SBV’s pumping low-cost gold into the market might only feed speculators whereas the market price could not go down,” Anh argued.

Industry experts assumed the SBV has reaped big success with its gold bid moves. Accordingly, in a short time the SBV spent a round sum of money for gold import and pumped into the market huge gold volumes to help banks close their gold positions in time, not hurting the foreign exchange market and macroeconomic stability.

However, current big price gap in the domestic and world gold markets still triggers concerns.

Upon this matter, Dr. Le Xuan Nghia said: “In the short-term, the SVB has succeeded with gold management, but in the long run the Vietnamese government should allow firms to import gold through more freely quota provisions or establish the national gold reserve to fine-tune domestic and world market gold price.”

Relative to current volatile exchange rate, Nghia said it came on the back of increasing trade deficits in the last two months and SBV’s recent exchange rate revision and falling dong deposit rate.