The State Bank of Vietnam (SBV) will continue to keep an eye on the local gold market as it has done recently, as it will help stabilize the country’s macroeconomic situation, said a senior SBV official.

Moreover, the price gap between international and local gold bullion will be narrowed, as there will be virtually no demand from local banks, said Le Minh Hung, SBV Deputy Governor.

As of June 30, all local financial institutions had finished buying enough gold bullion, equivalent to over 100 tons of gold, to return to their depositors. The amount of gold was previously deposited into the banks, and was then used by banks as loans or mortgaged assets.

Though gold demand on the market is expected to decline dramatically, the central bank will continue to hold auctions to sell gold for market stability if it recognizes that the demand is still there, he said.

But if there is surplus supply, as the ‘gold trader of last resort’, SBV will begin to buy bullion to supplement the national foreign exchange reserves, Hung told Tuoi Tre.

Regarding the of issue of gold bullion continuing to be deposited at banks, Hung said banks will charge depositors for the gold keeping fees, and the gold there is not permitted to be used in any form, such as loans or mortgaged assets. The central bank will monitor the gold holding process closely and impose penalties on any violators, Hung added.

When asked if the fact that local people have recently lined up to buy gold bullion can be seen as a contradicting factor to SBV’s statement on gold market stabilization, Hung said the local gold market in 2008-2011 was more volatile then now, with a lot of gold lending and depositing that exposed local banks, as well as the national banking system, to many systemic risks.

As the central bank decided to get tougher on managing the market and bringing it into order in 2012, the country imported less gold, around 30 tons in the last two years, dropping dramatically from around 50-100 tons previously.

On the other hand, gold speculation no longer exists, as through market research, the central bank found that gold investment demand is still there, but demand plunged after the SBV’s determined move was implemented.

So, after nearly a year of implementation of the new regulations on the management of the gold market, Decree No. 24, it can be said that the legal rights on ownership, storage, and trade of gold bars are protected, and the gold market has been rearranged basically, and order and discipline in the market has been established.

Moreover, it [Decree No. 24] has successfully prevented the effects of fluctuating gold prices to the exchange rate and inflation, helping to direct the surplus foreign currency previously used for gold imports to the national foreign exchange reserves, and thus bringing in macroeconomic stability.

In addition, gold smuggling is under control and gold is not used as a means of payment, helping the central bank to set out a plan to step in and mobilize idle gold for socioeconomic development.

In the long term, to reduce the amount of gold bullion held by local residents, SBV policies will have to ensure macroeconomic stability, enhance the value of local currencies, and strengthen confidence in the Vietnam dong, as gold possession brings no added value to the economy.

Regarding the question of whether the SBV’s efforts to stabilize the gold market will result in a cheaper local gold price, which is still VND5-6 million more than its world counterpart, Hung said as long as any fluctuation in the gold market doesn’t do any harm to macroeconomic stability, the price gap is acceptable.

 “To close down the price gap, SBV will have to allow individuals and organizations to open overseas gold accounts to trade the precious metal in massive volumes, thus destabilizing the market again,” he said.

Regarding the possibility that the central bank will raise gold bullion from local residents, Hung said international experience shows that there is no central bank anywhere which does so.

As a result, if the central bank raised the gold bullion, but is unable to use it as loans to local businesses, it will suffer great risk, including losses, when the world gold price fluctuates.

“The central bank is considering it, but the ultimate goal is to move into trading relationships. SBV will have to create market mechanisms to encourage holders of gold to sell gold, as the central bank has successfully done with the US dollar”.