Official gold market tightening would generate underground gold market

Jan 17th at 21:59

17-01-2013 21:59:06+07:00

Once the State Bank tightens the management over the gold market by setting higher requirements on gold trading entities, a lot of private gold companies would leave the official market, but they would set up a new black market somewhere.

With the strict requirements on gold trading companies (they must have the minimum chartered capital of over VND100 billion, have at least 2-year experience in gold trading…), only 17 credit institutions with 2,400 transaction points nationwide have been licensed to trade bullion gold.
As such, 5,600 other gold shops would be weeded out from the bullion gold market, and they would only be able to trade jewelries. Meanwhile, sources have said the central bank is considering tightening the jewelry market as well.

In fact, 4000 small gold shops had been shut down already before the new decree took effect in early 2013.

The currently valid Decree No. 24 allows the existence of the state monopoly with the state being the only agency that can make bullion gold.

Analysts believe that the monopoly would create a Vietnamese gold market which is isolated from the world market, which means that the domestic gold prices would not have relations with the world’s prices and any fluctuations in the world.

If so, analysts say, the domestic price would be always higher than the world’s price. The price gap of VND3-5 million dong per tael between the domestic and world price has been existing for the last many months.

Regarding the issue, the State Bank of Vietnam has stated that the price gap would not be a problem of its concern, because this would in no way influence the dong/dollar exchange rate.

However, economists have pointed out that the gold price performance would be unpredictable, which means that businessmen will not be able to foresee the price tendency to draw up their business plans.

Black market would take shape

A question has been raised about the fate of the 5.600 gold shops which cannot trade bullion gold.

Another question has been awaiting the answer that what will happen if there are only 2,400 gold transaction points nationwide, with a half of them located in HCM City and Hanoi, while seven northern provinces would have not any retail points.

It is obvious that Vietnamese people won’t give up the habit of hoarding up gold as a kind of assets unless they feel secure about the value of the local currency. As such, the demand for gold trading would be always exist.

Meanwhile, the supply has always been available. It is unreasonable to think that the 5,600 gold shops weeded out from the official bullion gold market would have to shut down shops and shift to other types of business.

Where there is supply and demand, a market would take shape. And such a black market, if it is established, would neutralize the State Bank’s regulation on the requirements on bullion gold traders.

Vietinbank and BIDV, the two big commercial banks in Vietnam, have joined the gold market, though they did not care about the gold trade business before. They might understand that the State Bank of Vietnam would have to rely on credit institutions to implement its gold monopoly policy.

It is predictable that private companies would not have the opportunities to join the gold market, which would force them to give up and make room for state owned enterprises.

Analysts have warned that the leave of private enterprises would lead to the fact that Vietnam’s gold trade cannot develop and integrate into the world market.