VietNamNet Bridge – The high pricing policy allows preventing gold price fever attacks.

The SJC gold price in March, April and May 2013

The State Bank has the right and the power to maintain the high prices for gold bidding sessions because of the monopoly mechanism, under which the seller can define the prices.

The high price has also been attributed to the high prices of material imports before, which makes the finished products high.

The gold price now has a very strong support threshold. The State Bank, as an exclusive supplier, won’t let the prices go to below the threshold, because if this happens, the gold fever attacks would return. And if this happens, with the limited gold reserves, the State Bank would find it difficult to control the gold market.

The State Bank of Vietnam still has been patiently pursuing its gold management policy, even though the policy remains controversial. The watchdog agency firmly believes that the gold demand would be very low after June 30, when banks have to end all of their operations relating to the depositing and lending in gold.

Once the domestic demand is low, the domestic price would automatically fall down, thus coming closer to the international price.

Easing the high gold demand from the public proves to be the long term goal the State Bank is striving to.

If the world’s price does not go down too sharply, the gold prices at the bidding sessions wouldn’t have the opportunities to go down to below VND38-39 million per tael.

No price fever, why?

It’s understandable why to date, no price fever fits have occurred since the day the State Bank began applying the monopoly mechanism.

People and speculators understand that they don’t have the opportunities to make money in short term, because the State Bank, as the exclusive supplier, defines the market price, while it is still powerful enough to put the price under its control.

Therefore, analysts believe that it’s too early to say that the new gold market management policy has succeeded.

Things may change in the near future. It would be a dangerous thing to import gold materials for domestic bullion gold production and sale in a bottomless market like Vietnam.

The State Bank once admitted that in the past, it once had to grant licenses to import 50-60 tons of gold material every year. Meanwhile, illegal gold imports also penetrated the domestic market through border gates.

However, despite the big volumes of imports, fever fits still attacked the domestic market interminably. This, in the eyes of experts, showed that the market demand was much higher than 50 or 60 tons.

When Vietnam imports gold, it has to pay for it in foreign currencies. Therefore, experts have every reason to worry that the high spending of foreign currencies would have influences to the foreign currency reserves and lead to the trade deficit. The gold market is also thought to suffer, once the supply is short in the monopoly mechanism and the demand is high.

The State Bank’s gold market management policy does not benefit people. The biggest beneficiary is the State Bank, which can benefit from the big price gap between the domestic and international prices. Commercial banks have also pocketed big money.

DNSG