About 30 tons of gold to be converted into cash

The banks which converted gold into cash have been being suffered losses due to soaring world gold price.

Banks to gamble with risks

The Circular No 22/TT-NHNN on gold mobilizing-lending activities of credit institutions required the deadline for banks to finalize the conversion gold into cash on June 30, 2011.

The banks which converted gold in to the dong although enjoying high difference between the gold saving rate and dong deposit rate have been being suffered losses due to soaring international gold price.

However, there are still banks expecting the international gold price will decrease or the liquidity of the dong will become weak to convert gold into the banknote.

According to the statistics from the State Bank of Vietnam (SBV), till the end of September 2010, 23 credit institutions mobilized 92.6 tons of gold, equaling to 73 trillion dong. 60 percent of mobilized gold volume has been used for lending activities. Suppose this mobilized gold volume remained unchanged so far, and 30 percent of gold volume that was converted into dong already, banks will need to purchase about 27.78 tons of gold from the domestic market.

In fact, the total gold mobilization in Q4 2010 and Q1 2011 still increased strongly, so according to the conjecture, there will be about 30 tons of gold to be converted into cash.

SBV’s deputy governor, Nguyen Dong Tien, at the press conference on April 29, 2011 said till March 31, 2011, the balance from conversion gold into cash decreased 14.7 percent from the end of last year.

The domestic gold price is lower than the world price: speculation will decrease

The central bank has said that 75.85 percent of the gold mobilization of the banking system is concentrated in HCM City and 11.67 percent in Hanoi. Typically, rural people prefer to keep gold than urban people when viewed from the perspective of accumulation. But in the localities, gold is not being raised much, suggesting that gold is speculative rather than investment.

Thus, the decision on stopping gold lending and mobilizing activities from May 1, 2011 has no heavy impacts on the monetary market.

However, gold speculation transactions mostly occurred with banks. Now, banks can not lend gold and prepare to convert gold into cash that means banks can not sell gold. Therefore, banks will also not buy or buy gold with small volume and then the domestic gold price must be lower than the world price whereby banks can earn profit.

If this situation prolongs, the gold speculation will reduce automatically and the accumulation demand of gold will also reduce. – Vietbiz24

Posted by VBN on May 9 2011. Filed under Gold. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry