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Gold imports: this medicine’s not strong enough to cool the market

Date: 11/26/2009 10:41:21 AM

When Governor Giau announced the State Bank of Vietnam’s decision to allow gold imports, he confidently said that the imports will force down the precious metal’s price. However, Giau’s prediction has not come true, the price keeps rising even though gold imports have arrived.

Gold imports: this medicine’s not strong enough to cool the market.

On November 24-25, gold was selling for 28.6 million dong per tael, an increase of about 33 percent since early June.

Gold price hike blamed on deteriorating dollar/dong exchange rate

Nguyen Thi Cuc, Deputy General Director of Phu Nhuan Jewellery Company, said that gold imports began to arrive last week and some has gone onto the market.

General Director of Saigon Jewellery Company Nguyen Thanh Long said the same, but declined to reveal the import volume.

Managers of gold companies affirm that no matter what price they have paid to import gold, they will not sell gold at below-market prices to help force the prices down.

Pointing to the rising dollar price (unofficially nearing 20,000 dong per dollar), they say that if they sell gold at low prices based on the previous low exchange rate, they will not be able to replace the dollar at the previous prices.

Long said no company would perform the ‘public service’ of selling below the market, not even just twenty or thirty thousand dong lower than its competition.

The director of a gold company said that his company has imported three million dollars’ worth of gold. If he doesn’t price the rising dollar into his calculations, but instead calculates his usual margin on top of the price he paid, he’ll lose 1.5 billion dong (about $80,000) when he replenishes his stock. So it’s the dollar’s fault, say gold traders. It is very difficult to buy dollars from banks and very risky to buy them on the black market.

Translating a world gold price of $1,160 per ounce and a dong/dollar exchange rate of over 19,000:1 nets a domestic gold price of some 28 million dong per tael after tax and expenses.

The premium of 500,000-600,000 per tael above gold’s world market price, according to Huynh Trung Khanh, an advisor to the World Gold Council, is not abnormal at all, especially when the gold price keeps fluctuating and the dollar price is at record high

Gold import quota not the remedy

Khanh said that the announcement about gold import helped to cool gold prices after the ‘crazy day,’ November 11, when prices briefly touched 30 million dong per tael. However, Khanh stresses, if the gold price stays firmly high in the world market, and the dollar price keeps escalating, no amount of gold imports will force the gold price down

Dr Le Dat Chi of the HCM City Economics University agrees that the gold price in Vietnam much depends on the dollar-dong exchange rate. As the dealers have explained, he said, it will be impossible to force the gold price down if businesses still cannot purchase dollars from banks and have to depend on the black market, thus pushing up the dollar price.

Chi has warned that if the dollar price can’t be brought down, there will be price increases not just in gold but in many kinds of goods, kindling high inflation.

Economists now seem to agree that the resumption of gold imports will not be enough to curb the gold price, and that gold prices will only stabilize when Vietnam takes comprehensive measures relating to monetary policy and the exchange rate.

Tran Hoang Ngan, a member of the National Advisory Council for Finance and Monetary Policies, told that if Vietnam can settle the problem of exchange rate, the gold price will ease by one to three million dong per tael.

Ngan expressed worry that failure to act will make Vietnamese people lose confidence on the local currency.

Dr Nguyen Quang Hung, a Vietnamese-American who is teaching in HCM City, said that the gold imports are just a measure to ‘soften the situation.’ As long as it is still unclear how much gold enterprises have been allowed to import and whether they have in fact done so, people will still feel ‘unsafe’ and decide to keep gold.

(Source:VietNamNet + TP + TT)

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