Speculative tendencies affecting gold prices

The lack of trust in the global financial situation could be one of the reasons leading global gold price to go up and down in the last three days. Not rejecting this reason, speculation could be another reason.

Setting a new record, the global gold price for immediate delivery in the afternoon of September 29 suddenly soared up to $1,314 per ounce, before being adjusted to $1,307 and $1,308 per ounce (buying and selling). Kitco’s statistics show that during September, immediate-delivery gold price has increased by 5.71 percent in total, equivalent to $70.6 per ounce. Gold prices for October, November and December delivery also increased by 0.2 percent, to $1,306.6, $1,307.6 and $1,308.3 per ounce, respectively. Being cautious but not missing the beat, domestic gold price on the same day set a new record of 31 million dong per tael. As soon as the market was opened, gold price rose by 600,000 dong per tael.
Although the increase was significant, the domestic market seemed to be very cautious before the sudden increase to high level of gold price. Investors were buying and selling moderately and there was no remarkable transaction.

According to SBJ, transactions on the system were mainly selling when prices at the peak level. There were relatively few investment transactions, customers demand to purchase was mainly to stop loss.
To avoid the risks, gold trading companies widened the price difference between buying and selling price at popular level of 100,000 dong per tael, and even 200,000 dong per tael at some companies. After a peak time, gold price to the afternoon of September 29 slightly fell to below 31.3 million dong per tael, the difference between buying and selling price was shortened to about 50,000 to 120,000 dong per tael.

According to analysts, the announcement of relatively bad economic news from the US has strongly supported the gold price. In addition, the 5,617-tonne buying-in of SPDR and Gold Trust funds after selling out in the last week has created strong leverage to gold price.
Dollar index has hit the lowest level in the last eight months after information that the trust of US consumers is much lower than expected was announced. Moreover, information on the return of bad debts in the EU has actively supported the rise of gold price.

Deutsche Bank said that there are absolutely no bubbles on the current market and the concerns about this situation are excessive.
Compared with the increase of oil price, the increase of gold price is still lower. According to statistics, from 2001 to 2008, the growth of gold price was just 400 percent, while oil prices rose by 730 percent in the period of the 1970s and early 1980s. Accordingly, the target gold price for 2011 is forecasted to be $1,450 per ounce.

The heated happenings of gold price in the last three days are considered to be unprecedented in history, especially in the recent decades, said the head of SBV. This situation is within expectation of some experts in both inside and outside the country. There are many causes leading to this situation. However, the lack of trust in the global financial situation is not really the main reason.
Governor Nguyen Van Giau said, in the fluctuations of gold price, there is also variation of psychology. However, through the assessments on the fluctuations of the gold market of SBV as well as of the Vietnam Gold Association in the last three days, governor Giau supported the information that there is absolutely no shortage of gold. The fluctuations of global gold price leading to variation of domestic psychology could be the reason that pushed up the domestic gold price. Governor Giau added that gold is not the commodity that has such great social demand to make the very stressful increase of gold price as at present.

However, head of SBV said there might be speculation factor in gold pricing. On September 28, when the gold price reached its peak of the day, SBV had a meeting with relevant agencies, including the police and market management agency, in order to coordinate to get more information, and then bring out solutions. Nevertheless, importing gold to stabilise domestic gold price is not the appropriate solution.

“To noon of September 29, we still see no signs that big difference between supply and demand could lead to shortage of gold items or lack of gold source”, said governor Giau. Gold items are not banned from import, but because of its sensitivity to the economy, gold is still subject to quota management mechanism. Nevertheless, according to SBV authorities, once there is reasonable demand to import gold, they would grant permission. Governor Giau reconfirmed that the general policy absolutely does not ban gold import, but arbitrary import is not allowed, thus it could lead to market destabilisation. – laodong

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

Posted by VBN on Oct 2 2010. 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