Will gold prices slow down in June after the market has absorbed dozens of tonnes of gold sold by the State Bank of Vietnam (SBV)?
The widening gap of selling/buying prices at gold shops shows that gold traders are more cautious with bullion price. In Hanoi, SJC gold was bought at VND40.73 million per tael and sold at VND40.95 million on June 6. In Ho Chi Minh City, SJC bullion price was quoted by Saigon Jewellery Company (SJC) at VND40.65 million per tael (buy) and VND40.95 million (sell). The gap ballooned from VND80,000 – 150,000 per tael to VND220,000-300,000.
Status finalisation – sprint
There is no fixed schedule but the SBV holds three bullion auctions a week and each auction puts forth one tonne. Auctions are usually organised on Tuesdays, Thursdays and Fridays. Domestic gold prices are more stable than world prices, expressed by slower increases or decreases in correlation to world movements. Domestic gold prices are now still more than VND5 million per tael than world rates. On June 6, the 27th gold auction was held with one tonne put for sale.
Why is June seen an important period for the domestic gold market widely known for volatility. June 30 is the deadline for commercial banks to finalise all gold lent. According to a report the SBV sent to the lawmaking National Assembly, as of May 3, credit institutions had finalised over 80 percent of mobilised gold, equivalent to more than 100 tonnes. 25 tonnes remaining were rapidly finalised in May. According to an authoritative source, the outstanding balance was reduced significantly as of early June.
Most of gold used for finalisation was purchased by commercial banks at SBV bullion auctions. As of June 6, as many as 27 tonnes of gold had been pumped into the market and commercial banks were big customers, demonstrating the ingot thirst for status finalisation which forced banks to accept to buy the precious metal although prices were higher than the world rates by VND5-6 million each tael.
Through SBV gold auctions, banks’ efforts to buy the precious metal on the market and negotiate with gold depositors to change into Vietnamese dong deposits bearing high interest rates, the number of banks with outstanding gold loans have reduced to just 5 – 6 units. According to plans, in June, the SBV will maintain three auction sessions a week to supply gold to the market and support commercial banks to finalise gold loans.
Some banks meet difficulty in closing gold status because they oversold gold when they were fraught with liquidity problems in 2011. When liquidity constrained and interbank interest rates towered, banks sold out their deposit gold to take cash to resolve liquidity. Many lenders sold dozens of tonnes of gold above their holdings and this has led to their current problems. Furthermore, they were also prone to price risks. For example, given their buying prices at VND40 – 41 million per tael, if world prices continue to decline and the gap between domestic and world prices narrows, they will lose on the today prices.
The SBV’s message is clear and rigid. Banks are forced to close gold status as of June 30, without any deadline extended. Mr Le Hung Dung, Chairman of the Board of Directors of the Vietnam Export Import Commercial Joint Stock Bank (Eximbank), said “We will finalise gold status as stipulated by the SBV at any cost.”
According to the SBV, the request that banks end gold mobilisation and lending to shift to buying and selling relations has generated capital sources for production and business activities of the economy, except for fundamental risks in gold mobilisation and lending. Then, it can rule out the possibility of the collapse of credit institutions.
However, when banks purchase enough gold for closing gold status in June, the gold market will be less boisterous? And, where will gold prices go?
Dim hope for price falls
Now, many people still remember SBV Governor Nguyen Van Binh’s promise to bring world and domestic gold prices closer with the difference of just VND400,000/ per tael. That promise has now become more and more distant.
Perhaps, this is not the time to discuss the dreamlike gap of VND400,000 or even VND1-2 million. If gold prices slumped immediately to VND35 – 36 million per tael from over VND40 million, the buying power would be extremely strong and banks would be sent into jeopardy. Thus, the regulators do not want to narrow the gap rapidly and immediately. They need more time, preparation as well as buffer moves.
For the moment, world gold prices are hovering above US$1,400 an ounce, or nearly VND35.9 million a tael. Given SJC quotation, world gold prices are now VND5 million/tael lower than domestic rates.
The central bank sold 27 tonnes of bullion gold via 27 auctions as of June 6. Since the first auction on March 28, the difference between domestic and world prices was US$250 an ounce on average while the gap in other countries was just US$1-10.
According to the Standard Chartered, the SBV spent some US$1 billion for the first 21 tonnes of gold, or 10 percent of the country’s monthly imports. Profit from the price gap was US$117 million.
According to the SBV Governor, the profitability is beneficial to the people because it is transferred to the State Budget and pumped into the economy. But, going after it is a threat. When the SBV hosts gold auction, it has to resort to reserved gold and it has to import an equivalent amount to maintain foreign exchange reserves.
“This ultimately reduces foreign reserves as domestic banks can use only Vietnamese dong to purchase gold from the State Bank. Additionally, it puts pressures on dong weakening,” said Standard Chartered.
Standard Chartered estimated that gold kept in Vietnam currently reaches some 1,000 tonnes, equivalent to 45 percent of GDP. This ratio in most other countries in the world is just under 3 percent of GDP. Administrative measures cannot solve the root of problems. The gold market is stable in the long term only when economic stability is promoted, confidence in local dong improves and gold demand reduces.
Bao Chau
Đăng ký: VietNam News
