Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Vietnam’s New War Against...

Commodities / Gold and Silver 2012 Aug 02, 2012 - 04:32 AM GMT

By: Jan_Skoyles


Best Financial Markets Analysis ArticleBack in April we wrote about Vietnam and gold investment, a brief look at the Vietnamese government’s attempts to ‘stabilize’ the economy through a series of restrictions on the gold market.

These restrictions included banning gold as a medium of exchange and issuing 7 ‘solutions’ which were designed to reduce ‘goldization’ the practice of replacing the dong with gold in transactions.

As many readers already know, Vietnam has a huge affinity with gold. So much so that house prices are priced in both dong and gold. According to Ronald Stoerferle’s ‘In Gold We Trust’ 2012 report, ‘Overall gold demand amounts to roughly 3.1%of GDP’ Stoerferle also notes that by comparison it is less than 0.5% in China.

These moves by the government aren’t so much to change the behaviour of citizens but also their psyche.  Further measures have been put into place in the last month in order to reduce the dependency on gold.

Ban on gold mobilisation and gold lending

To ‘prevent gold speculation’ the State Bank of Vietnam (SBV) has issued a directive ordering credit institutions to halt gold mobilisation and lending in gold from November 25 2012.

Gold speculation is popular in the country, namely in Ho Chi Minh which accounts for nearly 76% of the national total. Banks mobilise capital in the public’s gold to sell for Dong in order to settle liquidity problems.

Prior to July, commercial banks reportedly rushed to raise gold deposit interest rates in an effort to improve their liquidity – they used mobilized gold in order to borrow on the interbank market. However, according to reports, it is now easier to do this without mobilizing gold as bank liquidity has been improved. Therefore banks no longer have to mobilize gold.

In line with the directive, credit institutions will only issue short-term gold certificates, for those depositing physical gold bullion, to pay customers upon request, these will terminate on the 25 November.

Gold and inflation

Gold controls such as those mentioned above and in our previous research has come into force in order to try and control inflation of the dong. In the last year inflation has reached highs of 17%. Resolution 11, brought in to force in March 2011 in order to reduce inflation in the country, has included a series of measures in order to gain tighter controls on money, credit and the budget deficit.

One of the measures implemented by the central bank saw the interest rate on dollar deposits reduced to 3% whilst the 14% rate was maintained for Dong deposits.

Last month, this tactic was carried through to the gold market where the lowering of interest rates on gold deposits has been the first step by banks to stop mobilizing gold and reduce the attractiveness of storing gold with a bank. They of course hope this will slow down gold investment.

The Vietnamese Business Times outlined:

-          Saigon Bank, which previously offered very high interest rates of up to 4.6 per cent per annum to attract deposits, has slashed the interest rates to 2.2 per cent at the highest, which is applied to 6-9 month term deposits. Meanwhile, the interest rate of 2 per cent is being applied to other kinds of deposits.

-          Nam A Bank, which once paid 4 per cent per annum to gold depositors, now pays 1.8 per cent per annum for 1-3 month term deposits, and 2 per cent for longer term deposits.

-          At ACB, the gold deposit interest rate has dropped to 0.9 per cent per annum at the highest, while the depositors at the bank last month received approximately 2 per cent.

-          Viet A’s and Eximbank’s interest rates have been hovering around 0.6-0.9 per cent.

Currency controls

The SBV have said that the new regulation regarding the mobilisation of gold will not impact the majority of Vietnam’s citizens in the countryside as they traditionally do not store gold in the banking system.  However, it may well impact the price they receive for their gold in both the official and underground gold market.

In early July the SBV confirmed that it had taken over gold bar production in late May, making Saigon Jewellery Company (SJC) the national brand. ‘Since then, all production of gold bars in the country has been exclusively handled by the government’. This was expected following an announcement in November 2011 which announced the company would be put under government management.

SJC, according to their website, account for 90% of the gold bar market. The brand was selected for its popularity, ‘to save money for the state and avoid creating chaos in the production and trading of gold bars, ‘ stated the Deputy governor Le Minh Hung in the Vietnam Economic Times.

Citizens, all of whom are familiar with gold investment, have expressed concern that once SJC becomes the official brand of bullion it will be controlled like a currency. As the SBV will set the price each day, people fear the bullion will be put under further strict control, similar to currency controls.

Similar to legal tender laws in which the central bank has monopoly of control over currency creation, Vietnamese citizens have now had to come to terms with the idea that not all of their gold holdings will carry equal ‘value’ in the marketplace.

Despite the fact that the SBV has not banned any particular brand of bars, when it now comes to selling your gold, many shops will only accept SJC bars, whilst those who will accept the gold will only accept non-SJC bars at significantly reduced prices.

This decision by gold shops, to only accept SJC-branded bars, is thanks to the SBV announcing that it is considering only having SJC branded bars in the market place, as it ‘would be easier for the monetary authority to manage the gold market.’

Gold trade controls

Further rules also being considered by the SBV in the last month include the banning of travellers from bringing gold bars and gold ‘material’ in and out of the country. Only small amounts of jewellery – under 300g – will be allowed, otherwise customs officials will have to be informed and taxes will have to be paid.

Reasons listed for considering such a rule include the SBV’s aims to ‘strengthen the management of gold bullion…to keep the market stable…Strict management will create the right conditions for the processing of gold trading and ensure the rights of residents and gold enterprises.’

In our humble opinion, it seems that all the reasons given by the both the government and the SBV as to why the various gold controls are taking place i.e. the rights of citizens, to ensure a fair markets etc., are actually the very opposite of why they are being enforced.

The main reason so many people advocate a return to gold, and gold investment, is because it is the currency of humanity. It is chosen by citizens when they feel they are no longer receiving value from their nation’s currency. In the last year the cost of living has risen by 18% – third only to Venezuela and Ethiopia. The most cited reason for gold purchases in Vietnam is as its use as a savings vehicle. It’s a currency which everyone understands and it holds its value.

However, the Vietnamese authorities are doing their utmost to try and control it like a paper currency. As we have warned before, the government needs to be careful that these new gold policies do not increase the feelings of insecurity within the country. At the moment there is a fine balancing act between the fear of paper currencies from the citizens and the fear of gold by the government.

Want to invest in gold as an insurance against central banks’ money printing? Invest in gold like a professional in minutes…

Jan Skoyles contributes to the The Real Asset Co research desk. Jan has recently graduated with a First in International Business and Economics. In her final year she developed a keen interest in Austrian economics, Libertarianism and particularly precious metals.  

The Real Asset Co. is a secure and efficient way to invest precious metals. Clients typically use our platform to build a long position and are using gold and silver bullion as a savings mechanism in the face on currency debasement and devaluations. The Real Asset Co. holds a distinctly Austrian world view and was launched to help savers and investors secure and protect their wealth and purchasing power.

© 2012 Copyright Jan Skoyles - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in