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Gold risks

Phuong Thao
Friday,  Dec 9,2016,21:35 (GMT+7)
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Gold risks

Phuong Thao

The State Bank of Vietnam has in recent years issued several regulations to put gold trading under stricter control and reorganize the market, and it is widely believed that people have become tired of gold. However, whenever there are factors unnerving consumers, such as groundless rumors, then a gold fever would resurface, as seen in the past few days.

The central bank has recently dismissed as groundless a rumor that it plans to change the money, replacing existing banknotes with new ones. The rumor of the currency swap began circulating at the end of last month, sparking fears in the public, especially in rural areas. Many people have rushed to withdraw money from banks to purchase foreign currency and gold, rattling the financial market.

Since last week, the U.S. dollar price has skyrocketed, especially on the informal market with the greenback surpassing VND23,300. Soaring dollar prices have driven gold in Vietnam up though the precious metal has been on a downtrend worldwide.

On the global market, gold closed at US$1,171.1 an ounce on Wednesday, equivalent to VND32.08 million (US$1,432) a tael, losing around US$167 an ounce compared to the record on November 9 when Donald Trump won the race to the White House. Meanwhile, Vietnamese bullion traders quoted the precious metal at VND36.45 million (US$1,627) a tael, resulting in a price gap of VND4.37 million a tael. A tael equals 1.2 troy ounces.

Economists point out that the big gap between the domestic and international prices is fertile ground for speculation. For years, the central bank has been asked to take necessary measures to keep the domestic prices closer to world levels. The excessively wide gap between the domestic and international prices would cause macro-economic uncertainties.

Nguyen Thi Cuc, deputy general director of Phu Nhuan Jewelry Company (PNJ), says in Tuoi Tre newspaper that gold supply remains ample at the moment. Trading has increased but at a very slight rate. The rumor first lifted the dollar, and the gold market was affected in the same manner. Customer demand was not the cause, she explains.

According to experts, it is not the right time to buy gold. If the U.S. Federal Reserve (Fed) raises interest rates at its next meeting, the domestic gold price would tumble. If the market heats up due to strong demand, buyers would suffer losses and speculators would benefit hugely, Cuc of PNJ asserts. 

Nguyen Thanh Long, chairman of the Vietnam Gold Traders Association, says many gold shops have taken advantage of the rumor-driven upheavals to boost prices even further. While Saigon Jewelry Company (SJC), the country’s largest gold trader, set the gap between ask and bid prices at only VND400,000 a tael at Wednesday’s closing session, the difference was VND500,000 a tael at gold shops.

Economist Nguyen Tri Hieu says in Vietnamnet news site that the gold market currently is full of risks. Investors must be cautious at fluctuations and administering agencies are seeking solutions to contain the problem.

Le Quang Tri, director of sales at Tri Viet Securities Company, says the dollar appreciation at home and abroad might trigger a gold price rise, but speculation and psychological factors are the main culprits. Though the central bank has denied the rumor, people still seek gold as a safe haven as they expect the yellow metal to reach VND40 million as a result of the Brexit vote in July and even VND49 million as seen in 2011.

Tri also expects the global gold price to stabilize in the coming time while the dollar may drop back after the Fed announces its rate decision. The seasonal dollar demand for international payments in Vietnam can be balanced and the market will return to normal.

“It is estimated that the yellow metal will not surge in the near term as the dollar and U.S. stock markets still perform well. This means local gold buyers are facing hefty risks for purchasing gold at VND3-4 million higher than the world price for each tael,” he says. 

Prime Minister Nguyen Xuan Phuc on Tuesday urged the Ministry of Public Security to track down those persons who spread the rumor that Vietnam would replace the current banknotes, adding that the Government is totally capable of stabilizing the foreign exchange rate and the macro economy.

The rumor is believed to cause a negative impact on Vietnam’s economy and investment environment. This kind of false information strongly affects the nation’s macro-level stability, the Government leader said.

Previously, State Bank of Vietnam deputy governor Dao Minh Tu rejected the rumor as false and groundless. Tu put people on alert as misinformation could affect national monetary security at a time when the country is enjoying stable economic conditions.

During any fluctuations of gold prices, consumers are those bearing the brunt of losses.

Nguyen Ngoc Canh, head of the foreign exchange agency under the State Bank of Vietnam, says on Dan Tri news website that the central bank is closely watching the dollar and gold markets and will timely intervene if necessary.

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