Home » Gold » Gold bidding mechanism not a miracle drug

Gold bidding mechanism not a miracle drugWhether the domestic gold price decreases to come closer to the world price depends on the amount of gold the State Bank would put into circulation and the people’s confidence on the bank’s policies.

Right after the watchdog agency stated it would organize bullion gold tenders, the gold price has fallen down significantly, thus helping narrow the domestic and the world price from VND5 million per tael to VND2.8 million.

However, it seems that the domestic price decreased not because of the new policy. In fact, the gold price has been on the decrease, now staying at the 6-month deepest low. And though the gap has been narrowed, the domestic price is still sky high.

Governor of the State Bank Nguyen Van Binh once said that the price gap of VND400,000 per tael would be the ideal scenario. As such, the current gap of VND3 million per tael means that Vietnamese have been overcharged.

Le Hung Dung, President of SJC, admitted that the domestic price has been much higher than the world price because there has been no new supply source over the last year.

Dung also said that despite the big price gap, gold companies did not make fat profits as people thought, because there have been very few transactions.

The State Bank of Vietnam has affirmed on local newspapers that the gold reserves are big enough to intervene in the market when necessary. However, worries still exist that if the State Bank is capable enough to stabilize the market for a long term.

“Suppose that the gold price keeps decreasing, and people would buy gold instead of bargaining away. Will commercial banks and gold companies have enough gold to sell to people, then?” questioned Tran Thanh Hai, General Director of the Vietnam Gold Trade and Investment JSC.

Hai has every reason to raise the question. On February 28, when the price gap felt to VND2.8 million, people rushed to buy gold, leading to the gold price increasing again.

In the past, the State Bank once set up G5+1 group, in charge of selling gold to intervene in the market. However, the group failed to fulfill the task because of the overly high demand and the limited supply.

In principle, nowadays, when the State Bank holds the monopoly in the bullion gold market, it can have bigger power to intervene in the market. However, this does not mean that the State Bank would be able to import gold as much as it wants, because the gold imports would affect the macro economy, foreign currency reserves, and the dong/dollar exchange rate.

Meanwhile, the gold demand is still high, because they feel the uncertainties of the national economy and they tend to keep gold instead of cash.

Experts believe that in the immediate time, the drastic measures taken by the State Bank would help force the domestic price down and come closer to the world price. However, no one can say for sure if the State Bank is capable enough to keep the market stable for a long time.

They have also pointed out that if the State Bank still strains every nerve to intervene in the market; this would have negative on the macro economy and result in the returning of the “goldenization.”

Dr. Nguyen Minh Phong, a well-known economist has suggested setting up a national gold trading floor to make the domestic gold price “communicative” with the world price.


No comments yet... Be the first to leave a reply!