Exchange rate adjustment accelerates gold purchasing power

Explaining the continued gold price increases in mid February 2011, analysts say the gold price in the world has been escalating, while the demand in the domestic market increased sharply after the State Bank of Vietnam devaluated the dong by 9.3 percent.

Nguyen Thi Cuc, Deputy General Director of the Phu Nhuan Jewellery Company PNJ told Dau tu has confirmed that besides the impacts of the world’s price increases (the gold price in the world market has exceeded the $1376 per ounce threshold), the domestic market has been bearing the consequences of the dong/dollar exchange rate adjustment.

“The domestic market’s gold price has been supported by the high demand which increased after the exchange rate adjustment,” she said.

According to Cuc, on February 16 alone, the sold volume of PNJ was double the purchased volume. The gold trading company sold 1600 taels of gold, while it purchased 820 taels. On the peak day of February 15, PNJ sold 1900 taels of gold, while it could only buy 300 taels.

A tael is equal to 1.2 ounces.

An analyst commented that the gold demand has increased sharply on the market partially because people, who have lost confidence on the Vietnam dong, have been rushing to purchase gold after the State Bank devalued the Vietnam dong. The move by the central bank has raised worries about high inflation rates in 2011. Therefore, keeping assets in gold instead of cash has been considered as the safest practice for people.

Gold trading companies said that most people who have idle money, try to purchase gold or dollars to keep under their pillows. They do not want to keep Vietnam dong. This explains why commercial banks find it very difficult to mobilize capital in Vietnam dong, even though they set the deposit interest rate at 14 percent per annum, the highest allowed level.

Meanwhile, Tran Trong Quoc Khanh, Director of the Asia Commercial Bank ACB’s Gold Center, told the press that he does not think the latest exchange rate adjustment has had big impacts on domestic gold prices. Khanh said that since November 2010, the gold price has been set up by gold trading companies based on the actual exchange rate of 20,900 dong per dollar. Meanwhile, the move by the State Bank to adjust the exchange rate is in fact just an action to “legalize” the exchange rate which has been on the market already for a long time.

The current domestic price is now higher than the world’s price. If counting on the impacts of the exchange rate, the gap between the domestic and the world’s price has reached one million dong per tael after considering import tax and other expenses. Khanh has attributed the big gap to the supply and demand basis, saying that the short supply to satisfy the domestic demand has made the domestic price higher than the world’s price. In fact, the State Bank of Vietnam still granted quotas to import gold. However, Khanh said that the volume of gold that the central bank has allowed for importation is limited, and the central bank only allowed imported gold to intervene in the market rather than to balance the supply and demand in general.

Cuc believes that the world’s gold price will continue increasing. Once the gold price exceeds the technical threshold of $1369 per ounce, the increase will continue rising. The US economy still does not show positive signs, and while high inflation remains a big threat, people will still keep gold, considering this the safest shelter for their money.

The domestic gold market remains highly active these days. VnExpress reported that on February 19, a lot of people rushed to gold shops to purchase gold when the price jumped to 38.5 million dong per tael.

“I have been expecting the gold price to decrease, but it has been increasing continuously. I heard that the gold price has soared, and I rushed to purchase gold, because I fear the price will rise further,” a woman told VnExpress when she was considering purchasing a bracelet at Mi Hong Gold Shop near Ba Chieu Market in Binh Thanh District in HCM City.

Meanwhile, other people said they do not know whether to buy or sell gold. Thanh rushed to the gold shop in the morning of February 19 to sell a bracelet, hoping to earn a large profit when the price increased. However, she changed her mind and purchased a bigger bracelet, because she was told that the price would rise further.

However, the gold price unexpectedly decreased the same afternoon. SBJ gold was traded at 37.56-37.8 million dong per tael, decreasing by 540,000 dong per tael. – Vietnamnet

Tags: vietnam gold, Vietnam gold market, Vietnam gold prices