VietNamNet Bridge – The major purpose of the gold bidding is to stabilize the market. However, the goal remains unattainable after 6 bidding sessions were organized.

Gold bidding, what for?

The sixth gold bidding session took place on April 12, when the State Bank put 2 tons of gold on offer. Before that day, analysts predicted that another 50,000 tales of gold would be sold to enterprises and credit institutions, like in the previous sessions.

It seems that the efforts by the State Bank to invite bids for gold have been profitless. The market stabilization – the main goal of the bidding mechanism – has not been reached yet. There always exists a big gap between the domestic and the international prices. While the prices in the world market have tumbled recently, the domestic price has decreases in dribs and drabs.

Before the first bidding session, the price gap was VND3 million, while it has risen to VND3.8 million per tael. A tael is equal to 1.2 oz.

Tran Thanh Hai, General Director of the Vietnam Gold Business Company (VGB), has commented that it seems to be an “impossible mission” for the State Bank to intervene in the market and stabilize the prices.

While the world’s gold prices have been fluctuating heavily, the State Bank has been trying to stabilize the market with “manual bidding mechanism.”

The second reason cited by Hai to prove that the State Bank would not be able to intervene in the market is that the State Bank does not launch gold directly into the market, but supply gold through gold trading companies and credit institutions.

No one can say for sure if the gold put by the State Bank at bidding would go into the market. If the answer is “no,” the actual supply in the market would not be improved, which would not force the prices down.

Hai believes that it’d be better to set up a more reasonable mechanism which helps the gold market stabilize itself by setting up a gold trading floor.

Analysts also think that the State Bank’s gold sale may help force the prices down in the immediate time. However, this should not be seen as the solution for the long term. The State Bank cannot sell gold in the market to stabilize the market for a long term, because the gold belongs to the foreign currency reserves.

The gold trading floor would serve as the place for buyers and sellers to meet, while the intersection point in supply and demand would be found. Meanwhile, the State Bank should only make intervention when really necessary.

Where have the 6 tons of gold gone?

Analysts say it’s unclear if the gold supplied by the State Bank through auctions would reach the market as the State Bank wants. However, it’s clear that the huge volume of gold have become the assets of credit institutions and gold trading companies.

They have also commented that the businesses which buy gold can enjoy the dual benefit. Banks can earn at least 0.5 percent of profit from gold keeping fee. Besides, they can make profits from the price gap.

Regarding the question, an executive of a gold trading company said most of the buyers at the bidding sessions were commercial banks. It was because they (the 12 banks) still lack a big volume of gold to finalize the gold accounts as requested by the State Bank.

SGTT