Vietnam: gold loses its lustre

When the government closed down the lucrative, open black market trade in US dollars back in March, one Hanoi gold dealer, who also traded forex, predicted that the crackdown would be eased within a week.

He was wrong. The steadfast enforcement of the dollar black market clampdown has left Vietnamese consumers fretting about the gold bar trade, which the government also said it would restrict in order to reduce the downward pressure on Vietnam’s currency, the dong.

Vietnamese people have long used gold as a store of value, having been battered by decades of war and extended bouts of inflation – the current annual inflation rate of 19.8 percent may be the highest in Asia but it’s nothing compared to the nearly 500 percent inflation Vietnam suffered in 1986.

While the government has yet to clarify what restrictions it will place on the gold market, gold sales are down by as much as 50 percent on last year, according to a number of gold traders.

Nguyen Cong Tuong, deputy head of sales at the Saigon Jewellery Company in Ho Chi Minh City, said that the slowdown was a reaction to the expected government restrictions.

“When inflation climbs so high, measures to manage the market are necessary,” he said.

That view was shared by another dealer on Hanoi’s Ha Trung street, where the many gold shops that used to bustle with customers now seem far less busy than the neighbouring clothes repair and motorbike saddle stores.

Tuong also suggested that increases in dong deposit rates in banks, which have been capped at 14 percent per annum officially but rise to as much as 19 percent in practice, had made new gold purchases a relatively less attractive prospect.

There are a number of other theories doing the rounds about why gold may temporarily have lost its lustre in Vietnam. Some Vietnamese newspapers have claimed that rumours of sophisticated fake gold in circulation have hit demand. (In December, the FT revealed that Hong Kong’s gold market had been hit by a high quality fake gold scam.)

But the gold traders that beyondbrics spoke to were sceptical, insisting that the small gold bars sold by their stores were legitimate.

Another theory is that higher interest rates, part of the government’s drive to stabilise the economy, have hit gold speculators. Stockbrokers also claim that the recent stock market tumble was partly the result of tighter credit leading to margin calls.

Either way, gold dealers are hoping that once the government has clarified the new regulations, normal trade will resume. The government said it wants to set up a single, physical gold exchange and, although the gold traders’ association has held private talks with a Swiss gold trading house about this, there have been no public updates.

Vietnam has a “latent demand” for around 80 tons of gold a year, according to one international gold trader.

He said that this can either be satisfied through official channels, if the government can come up with a sensible regulatory system, or, if not, through smuggling, primarily from Cambodia and China. – FT.com

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