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Gold trading companies report high profit
Gold trading companies are still reporting satisfactory profit in the first six months of the year despite the difficulties due to the sharp VND/US$ exchange rate increases in late May and early June, which made the import cost higher.
At the end of 2007, the world’s gold price stayed at $840/oz after escalating rapidly from $636/oz earlier that year. The gold price has been increasing since then, once hitting the $1,000/oz threshold in the first months of the year, while now staying at $930/oz. Though the gold price has been increasing, the purchasing power in the domestic market remains firmly high.
The problem is that people still rush to buy gold as they fear that the high inflation will make the local currency lose its value. The higher demand has prompted gold traders to boost gold imports to meet domestic demand. In June, the dollar became very short: the VND/US$ exchange rate increased sharply from VND16,000/US$1 to VND19,000/US$1. The gold price on the domestic market was close to the world’s price. Gold trading companies had to purchase dollars at high prices to import gold for domestic processing.
The noteworthy thing was that though gold was imported through the official channel, gold trading companies had to purchase foreign currencies on the black market at prices much higher than the exchange rates quoted by commercial banks.
The problem was that the imported gold was consumed on the domestic market, which meant that gold importers got VND for the sales. The importers had to use the VND they got to purchase dollars on the black market for other import deals, as banks refused to sell dollars to the importers. At that time, the dollar supply was seriously short in the banking system, as people boosted purchases for hoarding up, while the demand for dollars to make payments for import deals increased sharply.
However, despite the difficulties, the business results of gold importers were very satisfactory in the first half of the year. The Saigon Jewellery Company SJC said that by the end of June 2008, SJC had got VND31tril in turnover, or nearly $2bil, which meant that the company fulfilled its yearly business plan just within six months.
SJC’s pre-tax profit was more than VND100bil in H1 2008. Meanwhile, the company obtained $1.5bil in 2007, an increase of $500mil over 2006.
Phu Nhuan Jewellery Company PNJ got the turnover of VND1,950bil in the first half of the year, an increase of 40% over the same period of last year, fulfilling 68.42% of its yearly plan, while its profit was VND69.1bil, up by 17%.
PNJ said that the company is considering expanding its distribution network by opening seven more shops and branches. It now has 85 shops nationwide.
The commercial banks which are allowed to trade gold on account, including Eximbank, ACB and Sacombank, also got fat profit with gold deals in the first half of the year.
Viet A Bank said that the income from gold trading activities made up 45% of total profit of VND141bil.
The bustling gold market in the first six months of the year was a golden opportunity for traders to earn fat profit. That explains why Vietnam imported 40 tonnes of gold just in the first four months of the year, nearly equal to the imports in 2007.
However, experts say that gold will not be the main choice of many investors in the last months of the year. Inflation is being curbed, the stock market is recovering and deposit interest rates are at high levels, which means that people will have more choices for investment.
VNN
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