VietNamNet Bridge – The State Bank of Vietnam (SBV) will sell gold until banks no longer need the precious metal with the hope that the gap between local and global gold prices will narrow, stated a senior source from the central bank.
At an auction on Wednesday, 40,000 taels of gold were up for grabs with 39,200 taels sold to 19 bid winners. The lowest winning bid price was VND43.3 million per tael, the same as the floor price, and the highest price was VND43.31 million a tael.
After five gold auctions, SBV sold 118,200 taels, or over 4.4 tons of gold, equal to the amount imported in 2011.
However, domestic gold price immediately fell to the global level after every gold import in the past, but now the local price is still VND3.4 million per tael higher the world’s price, casting doubts over the effect of the gold auctions.
The source from SBV explained the central bank is selling gold at market price, so it is impossible to bring down the local price right away. If SBV sold gold at a low price, it would fuel speculation, he stressed.
Banks have been the main gold buyers in the past auctions given their need to settle gold contracts. “When they no longer have demand for the precious metal, the gold price will certainly go down and the gold market will stabilize,” said the SBV official.
If SBV did not sell gold, the gold price difference would further widen as the deadline for banks to settle their contracts is drawing near, he said.
The source informed the central bank had used a small sum of foreign currency from the national reserve to import gold. As foreign currency credit growth remained negative in the first three months, pressure on the foreign exchange rate is easing and SBV will make use of this to buy foreign currency to replenish the reserve.
In contrast to SBV, gold bidders do not believe gold auctions will be able to bridge the gap between the local and global gold prices.
Banks are forced to join gold auctions as it is difficult to buy a large volume of gold in the market, said the representative of a commercial bank. “Therefore, even when the bidding price is high, we still have to buy,” he said.
For the local gold price to fall to the global level will be difficult as the price quoted by SBV is always higher than the global price, he added.
A company representative complained that the central bank was making it hard for small enterprises as the minimum gold volume to bid for is so high. The minimum amount to bid for Wednesday was 1,000 taels, worth some VND43 billion, far exceeding the financial capacity of most enterprises.
He thought SBV would hardly achieve its aim, saying that demand among citizens is currently low because SJC gold price is much higher than the world price. If the local gold price was reduced, demand would surge, seeing the price difference increase again, he said.
Source: SGT