Shutting the door on gold trading floor

Following Prime Minister Nguyen Tan Dung’s recent decision to stop gold exchange operations, the real rationale behind the move has been revealed.

The State Bank of Vietnam (SBV) said gold trading floors lacked legal foundations and posed inherent risks that might cause unrest and macro economic insecurity.

Considerable amounts of cash have been funnelled into speculative gold trading and not created any physical value for the economy. This should have been invested in more productive activities, according to the SBV.

It is estimated that commercial banks in Hanoi and Ho Chi Minh City have lent more than VND2trillion (roughly US$108 million) to gold investors on trading floors. Two weeks ago, PM Dung required all gold trading floors to shut and all domestic investment accounts to be terminated by March 31, 2010.

At a recent press conference, SBV Deputy Governor Nguyen Van Binh said that comprehensive gold trading regulations would be introduced in the first quarter of 2010.

The central bank is in charge of regulating certain activities relating to gold trading in the form of raw materials and trading via foreign accounts. Since 2006, local gold trading floors have operated independently of government regulations.

By the end of 2009, Vietnam had 20 gold exchanges operated by 11 commercial banks and eight private corporations with around 30,000 individual accounts. Duong Thu Huong, General Secretary of the Vietnam Banking Association (VNBA), said that highly-leveraged gold trading via exchanges could pose risks to the economy.

Gold exchanges normally offered a minimum 13-time leveraged trading, in which an investor paid a security deposit of 7 percent, or even 3 percent of the net asset value of their trades. The rest was backed by commercial banks.

On average, aggregate daily trading volumes on all 20 gold bourses hit VND1 trillion (US$54 million). Ms Huong said that gold trading exchanges should be properly regulated.

“The conditions for licensing a gold bourse should be tightened as much as possible. Looking at China, for such a large market, there is only one gold trading exchange company in the country. Such a model would help authorities better control this sensitive market,” she said. Jewelry shops are still allowed to trade physical gold.

VOVNews/VIR

Tags: Vietnam gold market