Gold price gap worries said to be unwarranted

September 11, 2009

LookAtVietnam – Recently local newspapers have reported that the domestic gold price has been increasing “chaotically.” Senior financial analysts deny this.

Financial experts like Le Van Hinh, the former Head of the State Bank of Vietnam’s Economic Analysis Division, assert that the disparity between domestic and world gold prices has never reached 500,000 dong per tael, as claimed by some local media.


A tael of gold is equal to about 1.2 ounces.


“In the current economic crisis, all businesses are cautious, especially gold trading companies, Hinh explained, adding that a difference of 500,000 dong per tael would be abnormally high.


Hinh noted that the variance between the world gold price and Vietnam’s is routinely 100,000 dong per tael or less.


An experiment in gold pricing


Tran Viet Nam, Deputy Head of the Gold Trading Division of Bao Tin Minh Chau Gold, Silver and Precious Stone Company, argued that “Chaos in the domestic gold price is impossible.”


He provided a formula to calculate the domestic sale price based on the world’s price.  The domestic price = the world’s price x US$ price (averaging the commercial bank price and the black market price)/ 8.3 (1 ounce = 0.83 taels).


In a test of his method, Gia Dinh Net reported that the world price on the morning of September 10 was $995/ounce.  Therefore the domestic price should be 995 x 18.20/ 8.3 = 21,810,000 dong per tael.


Comparatively, Bao Tin Minh Chau’s quoted prices were 21,840,000 dong and 21,910,000 dong per tael (buying and selling).


This means that the domestic price was just 100,000 dong per tael higher than the world’s market, just as Hinh suggested.  This is an acceptable level, covering the tax and other expenses of the gold trading companies.


Later, at 2 pm on September 10, the gold price was reported at $996.7/ounce. Meanwhile, in Vietnam, the domestic price was nearly the same, falling by 100,000 dong per tael from the day before. SJC gold prices were 21.85 million dong and 21.92 million dong (purchase and sale) in Hanoi and 21.85 million dong and 21.90 million dong in HCM City.


World gold price rises, speculation suspected


The world gold price has been increasing continuously over the last two weeks, which has raised domestic prices accordingly. The increase was a surprise even for gold analysts. Little available information indicated in the last few days that the gold price would rise so dramatically on the world market.


Many experts attribute the sharp gold price increases to speculation.


Hinh advised that gold prices increase because of a decrease in the dollar’s value against other hard foreign currencies, which makes the gold price higher in dollars.


When the dollar loses value, gold becomes more attractive not only to investors, but also to countries with a high ratio of dollars in their foreign currency reserves.


A Vina-VJC Gold Trading Center representative remarked that it is very difficult to predict if the gold price will go up or down, but that gold remained a safe choice.


Paradoxically, he also cautioned that right now, however, the unpredictable gold price in the short term also means that storing gold is a high risk investment.



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