Vietnamese Gold Rush gathering momentum

Vietnam’s dong continues to be under sales pressure and the capital flight into gold among Vietnamese is gathering pace. The Vietnamese currency is captured in a devaluation cycle and is still losing ground against the US dollar and other major currencies. Pressure is growing on the country’s political and monetary officials to curb rapidly rising inflation, and many Vietnamese are shifting their savings into precious metals – primarily gold – in order to protect their assets against inflation.

According to estimates from the World Gold Council (WGC), Vietnam’s combined private and public gold holdings are currently valued at around 45% of the country’s GDP. Assuming that these estimates are correct, that places the Vietnam’s gold holdings at around 1,000 tonnes. However, forecasts from the renowned London-based precious metals consultancy group GFMS differ, placing total Vietnamese holdings at 460 tonnes of gold, which would nevertheless correspond to 20% of Vietnam’s GDP. The National Financial Supervisory Commission’s deputy chairman Le Xuan Nghia claimed in a speech last Thursday that the country’s gold holdings ranged between 20 and 45% of GDP. That would make Vietnam the second largest gold holder in the world. The National Financial Supervisory Commission was established in March 2008 as an independent organisation designed to oversee the licensing of lenders, banks, insurers and other financial institutions.

According to Nghia, individual investors hold most of the country’s gold, with the central bank’s official gold reserves relatively small in comparison with private holdings. Rising inflation is encouraging more and more of the country’s citizens to buy gold, silver and other inflation hedges. Year-on-year, Vietnam’s inflation rate hit 19.8% in May, with escalating food and petrol prices causing hardship for many.

In the past week the International Monetary Fund has pressured the Vietnamese government to do more to get inflation under control and to regain financial credibility. Both global investors and Vietnam’s population are rapidly losing confidence in the country’s politicians and monetary officials. According to the IMF, Vietnam’s policy makers have to be very wary of getting stuck in a vicious circle, whereby increasing inflation expectations encourage more buying of goods and thus further price rises, which in turn lead to increased inflation expectations, followed by yet more price rises. Nguyen Van Binh, the central bank’s deputy governor, told the news agency Reuters in a reaction to the IMF’s criticism that the State Bank of Vietnam was likely to raise their key interest rate several times if the country’s inflation rate did not come down soon.

Market observers want to see Vietnam’s leadership doing more to prevent a further flight from the dong into gold and other tangible assets. In February the government introduced a plan that proposed tightening the controls on gold trading. A further draft decree on this subject from the State Bank of Vietnam is expected to be released at the end of this month. A law passed recently made it illegal for people to sell their gold to anyone other than the central bank – an attempt at undermining gold’s viability as a black-market currency.

However, many doubt whether such measures will be successful in stopping the flight into gold. Not surprisingly, it will likely increase resentment against the government on the part of the Vietnamese people.

Source: goldmoney.com

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