State Bank struggles to stabilize bullion market

Although Saigon Jewelry Company (SJC) officially handed over exclusive rights to manage brand-name and production quota of SJC gold to the State Bank of Vietnam (SBV), it seems this is not enough to stabilize the domestic gold market as the gap between domestic and global gold price is widening from VND2.4 million in late August to the current level of VND3 million per tael.

Nguyen Hoang Minh, deputy director of the State Bank of Vietnam-Ho Chi Minh City Branch, said that SJC handed over its gold moulds to SBV-Ho Chi Minh City Branch on August 25. Accordingly, the branch formed two groups, of which one is in charge of sealing and keeping gold moulds.
When the Central Bank gives permission to produce gold bars, the SBV-Ho Chi Minh City Branch will hand the moulds back to SJC. The second group will be responsible for supervising gold processing at SJC. After SJC completes the Central Bank’s order, the SBV-Ho Chi Minh City Branch will put gold moulds into the safe and seal them. In case of production carrying on for several days, supervisors will seal the moulds during their shift breaks and at the end of the day.

Gold production under supervision of the Central Bank is expected to stop illegal gold production. However, the monopoly of SBV in gold production has a great effect on SJC business activities.

Le Hung Dung, chairman of SJC, said that profits gained from producing gold bars at VND50,000 per tael and trading gold, accounting for 80 percent of the company’s profits, will be significantly reduced. The company will have to restructure its development strategy, promoting production and trade of jewelry instead of mainly focusing on trading gold bars. SJC has been strongly investing in jewelry which is expected to grow effectively in the next 3-5 years.

It takes more effort to make jewelry, but jewelry produces higher added value than gold bars, he said.

SBV aims to stabilize the gold market in the shortest time after taking monopoly control of production of gold bars. In particular, it gave SJC the green light to convert gold of other brand-names, and damaged gold into standardized SJC bullion.

According to Nguyen Hoang Minh, SJC converted around 1.8 tons of damaged gold into 48,000 taels of standardized SJC bullion to stabilize gold prices in Vietnam. However, the gap between domestic and global gold prices was still high.

Senior officials at a commercial bank said that supply of 48,000 additional taels of gold was not enough to meet the current demand as not only have people increased buying gold because of negative news on monetary market but commercial banks have also bought gold to pay clients who deposited gold at their banks.

Wide gap between domestic and global gold prices is likely to lure speculators to smuggle gold to produce jewelry, as the Central Bank has closely controlled gold moulds. SJC as a sole national gold brand is not enough to stabilize the bullion market.

One expert said that the Central Bank should increase gold reserves among foreign currency reserves to be always ready when markets need to be stabilized and keep domestic gold prices at the same level as global prices.

By Mai Thao – Translated by Thuy Doan

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