Vietnam gold market needs a transparent trading floor

The growing demand for US dollars to import gold, more often with gold prices backfiring on USD exchange rates, has made it difficult to control the foreign currency market.

At a recent seminar in Hanoi discussing the impact of the gold market on Vietnam’s financial market, economic experts agreed that it is essential to tighten controls on the gold market and set up a transparent gold trading floor.

Gold import surplus

According to Dr Le Xuan Nghia, Vice Chairman of the Vietnam National Financial Supervisory Committee (NFSC), a small-scale survey conducted by the NFSC on the level of household income, capital accumulation, and investment in Hanoi showed that more than 31 percent of households have gold reserves and 92 percent said they wanted to keep gold for fear of inflationary pressure.

Household investment in gold and foreign currencies accounts for 17 percent of the investment structure while the total amount of investment in Vietnam makes up around 30 percent of GDP (equivalent to US$30 billion).

This means many financial resources have not been invested properly to create more materials for society, which negatively affects the operation of the financial system as a bridge between savings and investment, Nghia said.

According to the World Gold Council, Vietnam is one of the world’s biggest gold importers with 95 percent of gold sold in Vietnam coming from abroad.

Over the past two years, the State has failed to control international payments in foreign currencies, especially in US currency as a large volume of US dollars has been used to import gold.

GFMS- the world’s foremost precious metals consultancy, specialising in research into the global gold, silver, platinum and palladium markets said since 2006, the volume of gold bar reserves in Vietnam has ranked second only to India, accounting for between 23-29.5 percent of global gold reserves.

With its purchasing power estimated at 20 tonnes of gold jewellery, Vietnam has remained one of the world’s top 20 gold consumers for years.

Cameron Alexander, a GFMS senior expert said Vietnam’s gold reserves hover around 460 million tones (equivalent to US$21-45 billion), accounting for 20-45 percent of its GDP in 2010. Meanwhile, in the countries which have the largest gold reserves in the world, the figure is less than 3 percent.

Illegal gold imports in recent times have led to a drain on foreign currencies.

Every year, approximately 20-40 tonnes of gold are smuggled into Vietnam, said Nguyen Van Binh, Deputy Governor of the State Bank of Vietnam (SBV).

Reducing solid gold trading

Nguyen Thanh Long, Chairman of the Vietnam Gold Business Association said the Vietnamese gold market is basically dominated by solid gold while 80 percent of gold trading in the international market is conducted through accounts.

Trading in solid gold often put businesses and investors at risk of complex fluctuations in gold prices and high input costs for insurance, import and storage.

As a precaution against any risks, Long proposed forming a legal corridor for gold trading accounts so that people cannot be dispossessed of their gold without any legal rights attached.

Fluctuations in the gold market have made it difficult for the banking sector to provide capital for economic development. Worse still, the failure to control and mobilize gold reserves has put monetary policy makers at a loss what to do with inaccurate statistics, Nghia stressed.

Gold import and export quotas should be removed to avoid causing differences in domestic and international prices, and import/export tariffs should not exceed 1 percent since gold is a valuable product. In addition, the SBV should set up a gold market management agency to control gold transactions between the SBV and commercial banks.

It is necessary to establish a State-owned national gold trading office in the form of a single member limited liability company with the two trading floors in Hanoi and HCM City, Nghia added.

Sharing this view, economic expert Le Dang Doanh said, “Vietnam needs to build a transparent and open gold market in conformity with international practice. To control the domestic gold market effectively, it is necessary to manage well the flow of foreign currencies to prevent smuggling and control business operations run by 10,000 gold shops throughout the country”.

Experts agreed on the setting up of a State-owned national gold trading office in compliance with international practice, which they said must be done as soon as possible. – VOV

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