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Gold price tipped to rise as US strategy increase inflation threat   2009-06-24 - Viet Nam News

Viet Nam Gold Traders Association vice president Huynh Trung Khanh spoke to Thoi bao Ngan hang (Banking Times) newspaper about the domestic gold market.

While both the international and domestic gold markets fluctuating, many people prefer to keep gold at home. How does this affect the price of gold? Do you think we should go back to importing gold?

When the gold price topped VND20 million per tael, demand went down.

When the gold price topped VND20 million (US$1,125) per tael (a tale is equal to 1.2 ounces), demand went down. The demand for jewellery gold is always low during the second quarter but when the price is high the demand goes even lower. The demand for gold ingot, on the other hand, depends on the need for investment, storing and speculation. People who bought gold to store, for example, would have bought it while the price was low. Now that the price is high, demand should decrease. People who bought gold for speculation would have sold most of it in the first quarter when the price was high. We also exported a lot of gold during this time. Thus, in the second quarter the amount of gold from speculation has run out. Regarding gold bought for investment, usually the amount sold will be about 20 per cent of the amount bought in. That makes up the amount of gold stored at home (about a few hundred tonnes) but this usually doesn’t get traded on the market. At the moment the price of gold is much higher than before and it will probably not fall back to VND14-15 million ($840) per tael. It is obvious that in the past year, every time the price of gold rose around VND1-2 million per tael, when it fell it would only go down a few hundred thousand dong per tael. This is also the reason why there’s always demand for gold to store at home.

In terms of gold imports, businesses want to import gold. But I think it should depend on the amount of foreign currency available in the country. If we need more foreign currency to pay ODA loans and the country is facing the trade deficit then we should take this into serious consideration.

At the moment the price of gold in our country is higher than that on the international market. Is this because of the cost of importing?

There is gold that was smuggled into the country and paid for by the US dollar on the black market. The same rate is applied when converting the price of gold into dong. Plus there is a cost for the agency that transports the gold. This cost is undetermined but set at a profitable rate. This is why the price of gold at home is higher than in the international market.

But, then again, the price of gold is adjusted according to the relationship between supply and demand. If the price of gold in the country goes too high, certainly there will be a "flow of gold" into the country that would upset the balance between supply and demand.

People still tend to pay for real estate with gold. Does this affect the price of gold?

Although that habit is still there, it has become less popular. For the people who use gold to pay for property, of course when they sell it, they will still evaluate the price of the property by gold. But then again because they can also convert the price into dong, this doesn’t affect the price of gold at all.

People are expecting the price of gold to rise again, although there have been moves to lower it, for example the third Central Bank Gold Agreement. Could gold reach a new peak price?

It is a rule that when the price of gold is high it will eventually fall. But in the long term it will rise again. The main cause is the decreasing value of the US dollar, and the US is working hard to escape the economic downturn by pumping thousands of billion of dollars into the economy. When there’s a risk of an inflation, people buy gold as a backup. And since gold is the number-one armour against inflation, all the specialists agree that the price of gold will rise again.

Although there is the third agreement, every bank has an annual quota and the banks only announce the amount they will sell, not the time of the trading. This means trading shouldn’t affect the price too much. Every year the CBGA sells 500 tonnes and there have been about 5,000 tonnes sold in the last 10 years but the trading has never affected the price much.

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