The State Bank of Vietnam (SBV) announced another auction to sell gold in a plan to increase supply for market stability. The second public sale comes after the first unsuccessful one in late March.
The second auction was conducted on April 4, 2013 at the SBV Exchange. Nearly 26,000 taels of golf were put up for auction, as many as in the first offer.
The reference price was VND43.61 million per tael. However, this price was applied to money deposit. The real starting price was kept secret till the bid opening.
From two first gold auctions
In the first auction, just 2,000 taels of gold were sold while as many as 24,000 taels were unsold. The SBV attributed to its first prudential step. The selling price is based on market-stabilising purposes and foreign exchange reserves protection. Besides, this helped prevent short sale for profiteering.
The SBV’s prudential step was reasonable and logical. Before the first auction was conducted, the bullion price plunged VND400,000 - 500,000 to VND43.3 million per tael. However, bidders were shocked at the high price of VND43.81 million per tael suggested by the SBV, about VND400,000 higher than the market price at that time. Eventually, only 2,000 taels were sold.
This auction marked the central bank’s first step to stabilise the gold market. Unfortunately, this act caused a reverse outcome. Domestic gold market quickly rose to VND43.7 million per tael on the high starting price of the auction although world bullion price was little changed at US$1,605 per ounce, widening the price difference between domestic gold and international gold to VND3.2 million before easing to VND2.8 million at the end of that day.
The SBV saw its difficulty after the first auction was closed. The difference between domestic and international gold prices widened. The gap ballooned to VND4.3 million per tael on April 4 when the second auction was held. This reality distressed the SBV because the purpose of the auction was to narrow the gap.
The successful offer will increase the gold supply for the market, thus stabilising the market. However, excessively high offering price gave rise to reserve effect.
Currently, world gold price is sliding because hedge funds and investors are selling out on growing optimism about US economic recovery and easing concerns over Cyprus crisis. World gold is traded at US$1,577.2 per ounce while domestic rate is standing at VND43.64 million per tael. The price gap is more than VND4 million per tael.
Short supply
A leader of a big gold trader pointed out that because of short supply from SJC, the price will be pushed up rapidly if the market sees an order to buy 300 - 500 taels. This reality gives rise to price manipulation.
In addition, commercial banks have a very high demand for the precious metal to settle deposits before June 30. But, it is not easy for them to buy gold now.
The short supply results in difference between domestic and world gold prices. And, this is also the reason for the central bank to conduct the second auction. Because the supply is scarce for a long time, the intervention of the SBV aims to increase the supply for the market. However, when the supply and demand is more balanced, prices will be more reasonable, according to an SBV official.
As global gold prices are on the decline, plus pressures from the first unsuccessful auction, the SBV had to consider a more reasonable starting price for the second sale. First auctions are said to be experimental. In the future, the SBV will hold several auctions each week.
A bidder is allowed to bid at least 5 lots (an equivalent to 500 taels) and at most 50 lots (5,000 taels). The price tick size is incrementally VND10,000 per tael and the bid tick size is one lot (100 taels).
Each bidder is allowed to register only one bidding price within the range of ceiling and floor prices.
Bao Chau
Vietnamese
