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Gold price volatility staggers investors   2009-06-16 - VietNamNet

In February and March 2009, when the gold price soared to 18-19 million per tael, a lot of people borrowed gold and sold it for cash, hoping that the gold price would have dropped by the time they had to purchase gold to pay debts. However, the gold price has not indulged them.


Suffering double loss


Tuyet Huong, the owner of Hoa Tra Mi Spa Shop in HCM City, borrowed 30 taels from Viet A Bank for three months at the interest rate of 4.5 percent per annum when the gold price was 19 million dong per tael. After several days, the gold price surged to nearly 21 million dong per tael, which prompted her to sell gold to get cash.


Huong hopes that the gold price will drop later. A price decrease to 20 million dong per tael would be enough for her to make profit.


Huong is lucky because she does not have to pay off her loan immediately.


Meanwhile, other investors are not as lucky as Huong. Phan Quang Thieu, an investor, said that he had to pay off his debt in gold on May 12, just after he had wrapped up a successful business deal. On that day, the gold price was very ‘hot’, but Thieu had no other choice than purchasing gold for debt payment.


“The profit I got from my business deal had to cover the loss I incurred from the gold loan,” Thieu said.


Nguyen Anh Phuong, the owner of a massage shop in Dong Nai province, related that she rushed to purchase gold to pay her debt at the time when the gold price skyrocketed, because she feared that the price would go up further. However, Phuong could not imagine that the gold price would decrease by 100,000 dong per tael just several days after it skyrocketed.


Phuong said that most petty merchants like her have borrowed gold and they now have headaches because of the gold price fluctuations.


And no wonder. Gold price fluctuations cause gold investors double losses, because gold loan interest rates are also calculated in gold.


Banks have stopped lending in gold


The demand for loans in gold has been increasing dramatically. Some commercial banks have even reported the high lending ratio of up to 80 percent of mobilised capital in gold.


The high demand proves to bring business opportunities to banks. However, this is also a difficulty for them, as banks have to raise deposit interest rate in order to mobilise more gold to meet the demand.


ACB proves to be the bank which has mobilised the biggest volume of gold (500,000 taels). Meanwhile, other banks including Eximbank and Sacombank have reported the figures of 300,000 taels each.


Eximbank said that in February and March 2009, when the gold price fluctuated, a lot of people withdrew gold from banks to sell, which explains why the deposits at banks have slowed down.


Dr Dinh The Hien, an investment and finance expert, said that in theory, banks can push gold deposit interest rates up to mobilise gold, then sell gold for VND when the gold prices are high and lend in VND at higher interest rates. However, the deals will only bring benefit if investors believe that the gold price will decrease in the future.

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