The safe haven has turned unsafe in the eyes of local gold owners as the price of the precious metal has been plunging on the world market whereas the domestic gold price is fluctuating wildly beyond all expectations. Obviously, the central bank’s intervention has taken the wrong side since monopoly over the gold market has exposed too many problems, distorting the market and going against the global trend.

Since late last month, the State Bank of Vietnam has taken hold of the local gold trade. The move was meant to help protect gold investors and consumers, narrow down the gap between domestic and global prices and help stabilize the market in the long run. Nevertheless, despite strong interventions of the agency which has supplied some 11 tons of gold onto the market in a short time, domestic gold prices are still around VND6 million higher than the world price for a tael.

Many people and experts via local media have strongly criticized recent moves of the central bank as uncertainties on the market have become clearer, pushing both enterprises and people into inevitable losses.

The central bank, by picking SJC (Saigon Jewelry Company) gold as the sole national gold bar brand, has destroyed many other gold brands in the country such as Thang Long Dragon of Bao Tin Minh Chau Company and AAA of Agribank, says Nguoi Lao Dong. Those enterprises have to leave gold processing machines unused after putting huge investments in their business. People also suffer as they have to sell their non-SJC gold at low prices and then buy SJC gold bars maybe at the highest rate in the world.

Wild fluctuations of domestic gold price have also triggered disorder in the foreign exchange market. Cao Si Kiem, former governor of the central bank, is quoted by Lao Dong newspaper as saying that “the disparity between international and domestic prices has accidentally encouraged gold trafficking, sending forex rates up due to high dollar demands of traffickers.” While the foreign currency demand from businesses is still low now and trade deficit in the first quarter has yet to cause pressure on the balance of trade, gold may be the culprit of the strong rise of U.S. dollar against Vietnam dong over the past days.

A reader named Van Van says in Nguoi Lao Dong newspaper says that it is wrong to choose a gold brand as the nation’s monopolistic brand. Other countries always respect market rules and keep prices aligned with the international rate. In Vietnam, the gap between the global and local gold prices has become wide given non-market management of the central bank. As a consequence, group interest, speculation and trafficking have increased while local buyers have no rights to access gold prices in an equal way with those in other countries.

Economic expert Nguyen Thi Hien says that there is a great confusedness in gold market management after such measures of the central bank have brought about poor effects, according to baohaiquan.vn. Recent gold bar auctions organized by the central bank are just enough to help gold trading companies and banks improve their gold positions while completely failing to balance the market.

Hien points out that the out-of-control gold market is the consequence of excessive administrative intervention of the central bank. “There is good reason for public criticism over the central bank’s monopoly in material gold imports, gold bar production and auction. These suggestions should be listened and respected,” Hien says.

Nguyen Thanh Long, chairman of the Vietnam Gold Business Association, says that it is necessary to manage, control and then narrow down the physical gold market with an aim to eliminate gold in the credit system. However, instead of supervising the market and granting gold import quotas, the central bank has deeply intervened into gold bar production and controlled the distribution system. Meanwhile, the gold market should be driven by the law of supply and demand.

The Government Inspectorate of Vietnam has decided to launch the first-ever inspection into the management of the local gold market, saying that domestic prices have continued to be volatile during over one year after the Decree 24/2012/ND-CP on gold trading management was issued by the Government.

This move is considered as a timely decision as the market has plunged into deep disorder. However, it may take these inspectors a lot of time to solve all problems of the gold market, especially the short gold positions at banks, business difficulties at gold trading firms and the huge global-local gold price gap.

Economist Hien proposes government inspectors to look into the pros and cons of gold auction, as the current situation shows deviation and is far from the standard course.

“I hope that inspectors can uncover causes of abnormal developments of the gold market because gold auctions fail to restore the market’s order. It is necessary to let gold driven by market factors and create conditions for enterprises with legitimate foreign currency sources to take part in gold production and business. This is also the way to raise real supply for the gold market,” Hien adds.

Source: SaigonTimes.