Despite official forecast that gold demand will fall after June 30, gold price has continued to rise, expanding the gap between local and international gold prices.

As of the end of Thursday trading session, world price slipped to $1,249 an ounce, equivalent to a local price of VND32 million a tael. But the local price then rose VND600,000 a tael to VND38.2 million a tael (1 tael = 1.2 ounces).

As of 10:30 am on Friday, the local gold price increased VND200,000 a tael to VND38.4 million a tael.

With the recent rise, the price gap between the local and international gold prices, after retreating for a few days, has returned to its stubbornly high rate, over VND6 million ($282) a tael, despite rising amount of gold supply sourced from the State Bank of Vietnam (SBV).

Declining demand forecast

The SBV has forecast that the price gap will scale down by the start of July given the fact that all local banks had bought enough gold bullion to return to their customers and closed their gold accounts one day earlier.

With the massive shutdown in gold accounts of local banks, there will be no demand from the sides of banks as they don’t need to buy anymore gold. Meanwhile, the demand from the local people can be negligible.

The SBV governor Nguyen Van Binh once told local newspapers that the implementation of Decree No.24 on gold market management prevented speculative mood arisen from local buyers, thus limiting previously huge demand for gold bullion for speculative purpose.

It [Decree No.24] helped stabilized the local gold market, and also the country's macroeconomic situation as a consequence, he said.

Reality

SBV on Friday morning held another gold bidding session for selling 40,000 taels of gold to 11 local banks and authorized dealers.

But eventually, the bank side with 7 members emerged as the winners with lowest and highest bidding price of VND 37.9 million a tael and VND38.08 million a tael, respectively. The biggest and smallest gold volumes sold for 7 of them were 15,000 taels and 1,000 taels, respectively.

The entire amount of 40,000 taels was sold to banks, an insider told newswire Vnexpress. 

One day earlier, the central bank held the 3rd consecutive session to sell 40,000 taels of gold billion after the June 30 gold account finalization.

In the two previous sessions, about 79,900 taels of gold bullion were successful bid, almost all of which were bought by local banks, insiders told Tuoi Tre. They had to buy to fill up their reserves following SBV’s requirement on closing their gold accounts timely.

Thus, after 39 auctions, the central bank has provided to the market about 1,037 million taels of gold, or approximately 39.88 tons, nearly doubling the 20 tons of gold that the central bank was expected to supply to the local market initially.

According to statistics, as of prior to the June 30 mark, 957,000 taels of gold were successful bid, or about 36.8 tons of gold.

SBV calls a halt

On late Thursday afternoon SBV issued a request for the suspension of gold keeping services offered by banks for the local people to wait for specific instructions on the matter. According to the request, commercial banks wishing to provide the service would have to apply for permission from the central bank.

Right after the request was issued, Asia Commercial Joint Stock Bank, Saigon Thuong Tin Commercial Joint Stock Bank and the Vietnam Export-Import Commercial Joint Stock Bank, coded ACB, STB and EIB on Ho Chi Minh Stock Exchange, announced the suspension of the service on their websites.

SBV representative, Nguyen Quang Huy, director of the Department of Foreign Currency Management told a TV program aired on Vietnam Television on Thursday night that local banks had offered the service for a year, but many of them had tried evading the SBV provisions on the matter. 

Therefore, SBV has recently asked several commercial banks violating the rule to suspend the service. However, not all banks have been asked to do so, he added.

"It is expected in the next two weeks SBV will issue a draft circular giving detailed guidance on the gold keeping service," Huy said.

According to SBV regulations, the credit institutions offering the service are not allowed to use gold deposited by the local people to do business or as mortgaged assets for lending/borrowing.