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Goldsmith companies, banks planning “general offensive” to stabilize gold market   2011-10-07 - Viet Nam Net

A group of commercial banks, the State Bank of Vietnam and the Saigon Jewelry Company (SJC) have sat together to discuss the plan to set up a 20-ton gold fund to stabilize the gold market. However, it remains unclear about the sources of contribution and the fund management mechanism.

Gold fund allows to “take quick actions”

SJC, the biggest bullion gold maker and some commercial banks believe that it is necessary to set up a gold fund which can intervene in the market and stabilize the prices when necessary.

The fund will be created by goldsmith companies and commercial banks, but it will take obey the instructions of the State Bank of Vietnam.

Under the plan, a 20-ton gold fund would be created from the gold to be contributed by SJC and the gold to be mobilized by enterprises from different sources.

When the gold prices increase abnormally, the group of banks and SJC will sell the gold from the fund to the market to stabilize the market and ensure that the domestic price is always just a little higher than the world’s price. And vice versa; when the gold price decreases, they will buy gold from the market to balance the fund.

SJC and banks believe that 20 tons, or 530,000 taels of gold is really a volume huge enough to prevent any attempt to control the market prices by any private institutions or individual speculators.

Especially, the gold for the fund would be mostly mobilized from domestic sources, not the imports. Therefore, Vietnam can save money and it does not have to spend foreign currencies for imports, which means that this will not create pressure on the dong/dollar exchange rate.

There’s an important piece of news that goldsmith companies and banks have asked the State Bank of Vietnam to allow some banks to trade gold on accounts, the business which is now prohibited, to minimize risks, and to allow to sell part of the gold they mobilize to intervene the market.

No official answer has been given from the State Bank of Vietnam, but sources say that the central bank would allow to resume the gold trade on account, and the decision would be released soon.

The sources have also said that the central bank is considering setting up a ceiling deposit interest rate for gold deposits at 0.5 percent, which aims to discourage people to hoard up gold.

The idea about the gold fund to stabilize the gold market has been applauded by experts, who believe that the biggest outstanding feature of the gold fund plan is that the fund can use domestic resources to intervene in the domestic market.

It is estimated that 500 tons of gold are being kept among people, which should be seen as a big resource to be “awaken”. However, to date, no proper solution has been found to turn the huge volume of gold into the capital that serves the national economy.

Who will contribute 20 tons of gold?

A question has been raised of where to find 20 tons of gold for the fund. An expert from the Ministry of Industry and Trade has pointed out that it would be not easy to find 20 tons of gold, which is worth 1.2 billion dollars.

The expert said that enterprises would contribute gold to the fund, but they need to be sure that their assets will be safe against risks, and they want the assets in the fund to make profits everyday, at least higher than the 0.5 percent ceiling deposit interest rate planned by the central bank. However, who will pay interests for the gold, then?

Vietnam has several stabilization funds which operate to stabilize the prices of many other kinds of goods. However, it seems that there are a lot of existing problems, and people have doubts that the problems would be bigger with the gold fund, because gold is considered a kind of special commodity.

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