Analysts have reacted to gold prices in Vietnam dipping below global rates for the first time in nearly five years, saying it indicates that the precious metal is no longer a safe haven asset in the country.

While there was previously a traditionally wide gap between Vietnamese and global gold prices, as high as VND7 million (US$313) a tael during 2013, a number of management measures by the State Bank of Vietnam had turned the tide.

Gold is mostly sold in Vietnam by tael, equivalent to 37.5 grams or 1.33 ounces.

Gold closed on Monday in Vietnam at VND34.05 million ($1,520) a tael, compared to the global market’s closing price of $1,266.5 an ounce, or VND34.09 million ($1,522) a tael.

The gap was some VND160,000 ($7.14) a tael on Friday, when prices in Vietnam dropped to below global rates for the first times since 2011.

“Global gold prices rose so fast that the market in Vietnam failed to react accordingly,” said Nguyen Thi Cuc, deputy general director of Phu Nhuan Jewelry (PNJ), one of the major gold producers in Ho Chi Minh City.

Cuc also admitted that demand for gold among local consumers had dropped substantially.

“We sell around 200 taels of gold on a daily basis, which is nowhere near the peak of a few years ago,” she said.

Global gold prices have soared 19 percent so far this year, a pace as fast as that in July and August of 2011, according to gold expert Tran Thanh Hai.

“Such a sharp increase could have encouraged everyone, from consumers and businesspeople to banks, to invest in the precious metal, had it not been for the policy to tighten the gold market by the State Bank of Vietnam,” he added.

As gold is under strict and careful management of the central bank, domestic prices remained stable and there was no ‘gold fever,' according to the expert.

Since late 2012, banks in Vietnam have not been allowed to either accept gold deposits or offer loans in the precious metal. There are also a limited number of licensed gold shops across Vietnam after the central bank tightened the registration rules the same year.

The State Bank of Vietnam has also applied measures to stabilize the foreign currency market to discourage people from holding onto gold or dollars.

“There used to be a strong connection between gold, foreign currency and the dong,” Hai said.

But the VND is the only pillar that is not tightly controlled, so such a connection is broken, and thus unable to cause any ‘waves’ in the gold market, he added.

“All these factors have made Vietnam’s gold market less active, and people are now hesitant to invest in it,” he concluded.

When gold was more valuable in Vietnam than in other countries, it was common for people to sell gold smuggled from Cambodia to earn big profits.

However with raw gold in Vietnam currently fetching some VND500,000 ($22.32) a tael less than world rates, local traders are collecting gold jewelry and turning them into raw forms to sell across the border.

“Traders can earn more than VND5 million [$223] in profit from every kilogram of raw gold sold across the border,” an industry insider said.

Cuc from PNJ also confirmed the cross-border gold sales.

“But only some small gold shops are doing this, while big companies are staying out of the trend,” she said.

“However if gold prices in Vietnam remain below global rates, smuggling will increase.”

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