Taking Gold Forex Trading Establishment into Consideration

While policies to regulate the gold market are still in the making, the local gold price is unpredictable and does not closely follow the international market. Removing the import quota and legalizing gold forex trading are among the suggestions that experts and businesses are proposing.

 

After the closure of the official gold exchange board, activity on many underground gold exchange boards has mushroomed, and they’ve been in business in a public way without any challenges from the “total ban” order from government agencies.

 

There are currently dozens of underground and busy gold exchange boards such as Hong Hoi, Dai Duong, Kim Phat Tai, IGI, NT Gold, IFX etc. On the surface, it appears that they are trading physical gold, but in fact they all allow the trading of gold forex or virtual gold. The leverage at these exchanges is 1:100, the volume is measured in lot (1 lot is equivalent to 100 ounces), the bare minimum per transaction is 0.1 lot.

 

Since there is no regulation from government agencies, each exchange board has their own way of marketing. While some boards insist they transfer the buying and selling orders abroad, other boards take responsible for their orders and become underground market makers. “The main server of the company is directly linked to the foreign exchange boards. When problems arise, our company will take responsibility,” asserted a salesperson working for the International Gold Investment and Business Company JSC.

 

Investors on this board only need to invest VND4 million to start trading with a margin of one percent. This company declares that they are trading physical gold.

 

This is a common occurrence at these underground gold exchange boards. At Hong Hoi Investment and Consultant Company, a reputable name for virtual gold trading, customers who want to trade gold forex through the company only need to open an account worth US$1,000. The leverage ratio is 1:100.

 

Most of the boards claim to transfer their orders abroad to international exchange boards, the fact of which cannot be confirmed. A veteran investor affirms, “People trading on underground local gold exchange boards transact based on software self-designed by the companies. There are errors whenever price turns to the customers’ favour, causing many people to have their accounts “burnt” and lose money. She also said that the companies will not take responsibility should their systems break down.

 

Since there is no one being hold responsible for an error transaction, investors have to contact some foreign exchange boards; and suspicious activities going on uncontrollably at underground gold exchanges leave investors at a disadvantage. There have been many bankruptcy and fly-by-night cases resulting from shady activities at gold exchanges, where easy money making is hyped but in fact money is easily lost.

 

When competing on the level playing field on the international exchanges, Vietnamese investors also suffer losses. They often rely on technical analysis to place their orders but are always one step behind international investors who have direct access to the latest news. Thus, Vietnamese investors end up being the losers. Vietnamese investors only react when there is unusual information being published, at which time international investment community has already taken their profit. Other investors utilise technical indicators but these are also not reliable because they are written for a particular board, not to mention that these also depend on seasons and time zone differences, which makes winning even more of a challenge.

 

There has just been a wave in which gold price reached its highest level for the last two months. Although gold price had a prior sharp plunge, many investors still bet on the increasing trend of the price from now until the end of the year, especially after China claimed to boost their national gold reserve to six times the current level.

 

Deutsche Bank AG has just recently forecasted that gold price in late 2012 could reach US$2,000 per ounce. HSBC also issued a forecast of a US$1,900 an ounce price level for gold, due to an unstable economy, geopolitical tensions, and the move by central banks around the world to increase gold reserve.

 

Mr Nguyen Thanh Truc, Vice Chairman of Vietnam Gold Traders Association and Chariman of Agribank Jewelery Limited, believes that gold price in the international market can reach the US$1,800 per ounce level in the upcoming September and continues a climb uphill during the last few months of the year.

 

Being even more optimistic, Mr Tran Thanh Hai, CEO of Vietnam Gold Business Corp., offers his view on gold price, “Most probably, the gold price can reach the US$2,000 level at the end of the year.”

 

However, expectation for huge profit is associated with high risks. Mr Dinh Nho Bang, Vice Chairman of Vietnam Gold Traders Association asserts that with the current regulations on foreign exchange market, it is difficult to forecast the gold price in the middle and long term.

 

Local gold price does not follow that in the international market due to current regulations of the gold market. Decree no. 24/2012/ND-CP regarding measures to monitor the trading of gold bars does not fulfil basic purposes, such as reducing the local and international price of gold, reducing gold import, increasing gold deposit from local people to aid economic development. When the international price moves up just a little bit, the local price surges. But when the international price is down, local price remains high, sometimes with a difference of above VND2 million per tael compared to the international price level, which pushes the risks towards the gold investors.

 

Dr Le Xuan Nghia suggests that the State Bank of Vietnam (SBV) should consider abandoning current importing quota and switch to automatic quota system with a predefined limit; at the same time allow commercial banks to attract capital in terms of gold and to trade gold forex in order to balance the market and prevent risks. Afterwards, the SBV can swap gold for cash and vice versa with certain conditions being met and with certain monetary goals in mind.

 

Some people support the idea of re-establishing the gold exchange board because of the mushrooming of underground gold exchanges despite the ban order. These underground boards have already attracted quite a number of investors regardless of its potential risks to the unprotected investors. If a national gold exchange board is established, it will satisfy the demand of the public to invest in gold and help avoid potential frauds. The immediate benefit is another source of government revenue from gold transaction tax. Also, unlike like the current situation, local gold price can never be way above the international level.