Last week, gold and greenback prices both shot up sharply in tandem, with local gold prices hitting VND29 million ($1,600) per tael, before receding by the weekend. Different from international markets, in Vietnam gold is traded per tael unit. But, the price level of $1,110 per ounce equaled around VND23 million ($1,270) per tael.
Dinh Nho Bang, general secretary of the Association of Vietnamese Gold Traders (AVGT), said the price difference was caused by the local market’s isolation as local gold traders were not allowed to export and import gold freely.
“Moreover, different from international markets, local individuals traders buy and sell physical gold, not via trading accounts, thus the demand for gold is physically real,” Bang said. Some local gold traders heading to the unofficial forex market to buy greenbacks to bankroll illegal gold imports
“This pushed the US dollar-Vietnamese dong exchange rate from VND18,500 per dollar to VND19,500-20,000 per dollar last week,” State Bank governor Nguyen Van Giau said in a statement. The authority last week called on the public to stop speculating on the greenback and immediately authorized the import of gold. Following the news, the price of gold fell to VND27.6 million per tael, equivalent to $1,184 per ounce, from VND29 million per tael on November 11, 2009.
By the end of last week, local gold prices dropped another VND1 million per tael to VND25.6-26.5 million as people rushed to sell gold fearing further price drops. The greenback fever has also eased. By end of last week, the black market exchange rate stood at VND18,900-19,000 per dollar.
The State Bank inspection force also cooperated with the Ministry of Industry and Trade’s agencies to inspect local authorised foreign currency traders, who are not allowed to sell greenbacks to the public. HSBC foreign exchange strategist Richard Yetsenga said re-allowing gold imports was likely to stabilise foreign exchange market dynamics in the short term.
Bang said only when local individual investors turned to trade gold via accounts would the gold fever threat be removed. At the moment, in Vietnam, there are some gold trading exchanges such as Asia Commercial Bank Gold Exchange. However, a large portion of public investors preferred traditional manner of storing physical gold.
Yetsenga said currency depreciation pressures persisted with loose monetary policies and deterioration in the trade balance. “The deterioration in the trade deficit is of particular concern. Domestic policy has not been tightened at all at this point. The longer tightening is delayed, however, the greater the risk that destabilising speculation again emerges in the currency,” said Yetsenga.
By Bao Ly - VIR