While investors around the world are fleeing from gold, locals here are rushing to buy gold bullion as if there is no tomorrow, though the local gold price is nearly VND7 million per tael more expensive than its world counterpart.

As of 6:00 pm last Friday, after three days of continuous decline, world gold prices lost almost $100 per ounce, falling to $1,296 per ounce, equivalent to VND32.9 million per tael.

Although significantly reduced, the domestic gold price was quoted at VND38.5- 38.7 million per tael, still much higher than the world price.

Selling like hot cakes

At 10:30 am on Friday, local gold buyers were lined up in front of the gold store at Saigon Jewelry Co’s headquarters in Ho Chi Minh City’s District 1, patiently waiting their turn.

Minh, a gold buyer, said he took advantage of the falling price to buy gold to resell in the future for marginal profits. Moreover, depositing interest rates are now low, so he decided to switch to buying gold for better yields.

This was not an isolated case.

Many buyers told Tuoi Tre that they did not mind the difference between the international and local gold price. They were ready to buy simply because the current price was cheaper compared to 1-2 years ago.

As of 2:00 pm, SJC had already sold 2,500 taels of gold bullion, or around 93.75 kilograms, said Nguyen Cong Tuong, head of SJC sale department.

At Phu Nhuan Jewelry Co (PNJ), another big local gold bullion seller, sales reached 1,500 taels (56.25 kilograms) as of 4:00 pm, 4-5 more than on a normal day.

Due to strong demand combined with the recovery of the world gold price, domestic prices increased continuously to VND39.35 million a tael, up from VND38.7 million a tael at the opening of the Friday trading session.

This rush to buy gold took place at the time that local banks were forced by the State Bank of Vietnam to close their gold accounts by the end of this month. Previously, local banks were reported to use half of the gold bullion deposited by their customers to balance their gold positions in the central bank, while another half was sold for cash that would be used for lending.

One high-ranking official at the central bank told Tuoi Tre that if SBV continues to host gold bidding sessions for local banks like it has recently done, it would take 1-2 more weeks for those banks to buy enough gold bullion to repay their depositors.

Though many banks said they have closed their gold accounts, seven banks in HCMC still have not finished the job. Among them, one has yet to close their overseas gold account, and is seeking approval for an extension from the SBV.

As a result, from now to the end of this month, local gold demand is expected to be strong enough to keep the local gold price higher than its international counterpart.

Think twice, please

At a conference on reviewing the banking sector in the first half of 2013 recently held in Ho Chi Minh City, SBV Governor Nguyen Van Binh said the central bank will not extend the deadline again as it did last year.

As a result, after June 30, the gold demand in the market will be from the people with real needs, he said.

Economist Vu Dinh Anh said after the aforementioned date, as the banks are forced to return the gold to depositors, there will be very large supply of gold on the market. Thus the difference between the domestic and world price of gold will certainly be narrowed.

Agreeing with the view, Nguyen Ngoc Trong, sales director of PNJ, said after the date, if the central bank still organizes biddings within a month, the price difference will be only VND3 million per tael, and even scale down to VND1-2 million per tael in the next 1-2 months if the demand comes from the ordinary people.

"Buying gold this time is too risky because the world price of gold tends to go down," Trong said.

Tran Thanh Hai, Director of the Vietnam Gold Business Corporation (VGB), said there are two risks for gold buyers at the moment.

The first one is the possibility that the central bank will intervene to narrow the price gap, and the second one is that the world price of gold is in a bear market, especially with the U.S. Federal Reserve (Fed) announcing that it would narrow its stimulus package.