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SBV lifts gold import quotas to ease frenzy
Gold has experienced several weeks of crazed highs and feverish trading, setting new records multiple times just in the past week alone. To cool things down on the gold market, the State Bank of Viet Nam has lifted import quotas for the precious metal, and State Bank governor Nguyen Van Giau spoke to reporters in Ha Noi about the decision.
Why has the State Bank decided to lift gold import quotas for the third time?
The global gold price on Monday night was up US$18 to $1,410.60 per ounce, pushing up domestic gold prices immediately. Besides the global market impact, the domestic market on Monday morning got some unusual signals, with a number of people still daring to buy gold even when the price was already unreasonably high. Some gold shops also refused trading and closed earlier than usual, creating a negative impact on the market.
The State Bank collected information from various sources and decided to increase gold import quotas for a number of gold traders with stable foreign reserves in order to ease pressure on market psychology.
The duration of this permission [two weeks] is longer than the two previous times, so gold traders will be able to consider the most optimal point in time to import gold and minimise risks.
How do import quotas impact the market?
The effect is definitely visible. After gold imports are allowed, the price always goes down sharply.
However, gold import permission is not the only remedy for all the current issues affect price, like the trade deficit or inflation. People are now very concerned about inflation and the weakness of the currency.
In fact, the Government has had to raise the minimum wage and gradually regulate the prices of essential utilities like electricity, coal, oil and gas in line with market mechanisms. These actions are considered ‘solid' inflationary factors which may contribute 1-4 per cent to consumer price index growth.
Our current economic structure also affects the inflation rate.
Therefore, we need comprehensive and balanced measures for both fiscal policy and investment policy, not just only relying on monetary and foreign exchange policy to control inflation.
The gold market in recent months has repeated the same scenario. When global prices rise, key domestic gold traders raise prices and complain about a short supply. Then, when the domestic price hits a new record high, the State Bank lifts import quotas. Some are wondering if the lifting of gold quotas represents a concession of the central bank to market pressure?
The market's changes are hard to measure and few people can give an exact forecast. In our turn, the State Bank has to observe the market strictly and consider thoroughly every decision. The central bank was not pressured or making concessions when lifting import quotas on gold.
But the price often increases sharply right before the announcement and falls dramatically afterward. Is it possible that the gold quota information is mercenary?
Every market member always acts to maximise their profits, and it could not be excluded that someone here or there speculates when prices fluctuate. But I don't think the banks act from a mercenary motive.
Some believe that the new regulations of the central bank forbidding banks from lending cash against gold collateral may add to the gold fever. What do you think?
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Companies receive gold quotas
Gold prices yesterday fell to VND36.26 million (US$1,726) after traders and commercial banks received their import quotas for the precious metal this morning.
Eligible gold importers include Asia Commercial Bank, Sacombank, Eximbank, Viet A Bank, Sai Gon Jewellery Co and Phu Nhuan Jewellery Co, however, these enterprises were unable to disclose details about their quotas.
This is the third time the State Bank of Viet Nam has allowed gold to be imported into the country this year. In August and October, 10 tonnes of gold were imported, which did little to quell the market's demand for gold.
By 10AM this morning, Sai Gon Jewellery Co, the Sacombank Jewellery Co, Bao Tin Minh Chau, Agribank Jewellery Co and Phu Nhuan Jewellery Co were selling gold at VND36.60-36.69 million per tael. But it was down to VND36.26-36.54 by late afternoon.
The central bank's decision to allow gold to be imported into the country lowered gold prices from VND38.8 million to VND36.26 million per tael at shops in Ha Noi and HCM City.
The US dollar depreciated in value from VND21,300 late yesterday to about VND20,095-21,100 today. | We have not had official figures about this, but I think it's not a factor. The total gold needed to settle loans pursuant to the regulation is just 10 tonnes, and they have eight months to take care of that business. No one is so stupid as to buy gold at high prices to pay off earlier loans.
Oil prices over the past three years are a big lesson. They hit $200 per barrel, then plunged to just $50 per barrel. In recent months, the price of oil hovers at around $90 per barrel. So, it's really risky to buy gold at this time.
How is gold affecting the value of the dong?
The domestic currency is the payment instrument of an economy. But, in the last few months, gold and the US dollar have also become payment instruments. Some suggest that we should take advantages of these tools; others say no, in order to reduce the dollarisation and the troubles gold can cause in managing the economy.
They suggest two solutions. The first is to do somehow to attract all gold in private hands into the banking system. The second is to create negative conditions for people to accumulate gold at banks, encouraging them to sell or transfer gold into other assets or forms of investment.
The State Bank and the Prime Minister prefer the second solution. Of course, it does not mean we are discarding gold from playing a role in the economy and society. But we have to seek solutions to ensure the health of the payment system.
But gold has driven up the value of the dollar, hasn't it?
That's true, partly because people accumulated dollars to speculate in gold. But the problem is in current laws. The Ordinance on Foreign Exchange allows remittance receivers to keep their dollars, or save them in banks. Nobody can deny them such holdings. Therefore, the central bank may propose some adjustment to that regulation in the near future.
Could you give us some information about the plan to infuse dollars into the economy?
Selling or buying depends on supply and demand. Firms have to prove their need for the dollar, e.g., to import essential goods. We will continue to strictly observe dollar sales, and I am chairing a team to supervise this process.
The Government instruction is very clear, to stabilise the economy and narrow the trade deficit. The Ministry of Industry and Trade has already listed import goods not to be encouraged and goods which the country can produce. The central bank will give priority to essential imports.
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