Continued Intervention into Gold Market

After successfully stabilising the domestic market and precluding gold fevers, the State Bank of Vietnam (SBV) is aiming to stabilise domestic gold prices.

 

Mismatching downward price movements on the global gold market, domestic gold prices continued to peg at high prices, causing the price gap between domestic and international gold prices to widen. This development forces the central bank to resume gold bar auctions which were paused fortnight.

 

The domestic gold market was strongly affected by the world market. Syria’s acceptance to give up chemical weaponry and US President Barack Obama’s request to the US Congress for a postponement in casting votes on military attacks on Syria reduced the demand for shelter in the precious metal. This news has caused direct impact on bullion prices in the past few days.

 

Attack threats pushed gold prices up 6.3 percent but the bullion still slumped 19 percent this year partially because of investors’ weakening confidence in store value of gold. Meanwhile, major stock markets in the world advanced steadily on signals of stronger economic recovery, stimulating many gold funds to cut holdings. Currently, the total gold reserves by gold funds in the world are unchanged at 1441.27 tonnes.  If gold prices slide into the low price territory, trust funds may sell off gold to add weight on downward pressures.

 

For that reason, the rise of 6.3 percent in the past winning run cannot assure of an uptrend of the bullion price whereas downward pressures are heavier. Gold price is forecast to develop complicatedly and is highly dependent on Fed’s monetary policy. Goldman Sachs retained its forecast that gold price would go down through 2014. Meanwhile, according to Societe Generale, gold prices are projected to slide to US$1,200 an ounce by the end of this year.

 

In the latest losing run on global gold market, the domestic gold market does not move in tune with international rhythms. Domestic bullion prices declined moderately while world prices plummeted; hence the price difference was widened from VND2.5 - 3 million to VND3.4 million per tael.

 

In the domestic market, on September 12, DOJI Group quoted SJC gold price in Hanoi at VND37.88 million per tael (buy) and VND38.1 million (sell), respective drops of VND140,000 and VND40,000 from a day earlier. This was a significant price change after the central bank announced to resume gold auctions to increase supply to the market. SJC gold was still VND3.3 million a tael higher than the world rate.

 

Bullion market remained stable in the first half of September although the State Bank of Vietnam ended gold supply via auctions. This was a very encouraging signal when there was no big fluctuation on the market.

 

When the gap between domestic and international markets was widened, the central bank decided to resume gold auctions after a two-week break, with the 58th session on September 12. In this session, the central bank offered to sell 20,000 SJC-branded gold, or nearly 0.8 tonnes.

 

The minimum volume for a bid is 500 taels, not 1,000 taels as in March when the auction policy started. The maximum volume for a bid is 2,000 taels, down from 5,000 taels.

 

These new regulation are considered conservative. SBV is considered testing market reactions to adjust supply.  The reduction in maximum and minimum volumes aimed to allocate gold more even among bidders. Sharks on the market will not easily accumulate large volumes of gold to control the market.

 

The 58th auction is the confirmation that SBV is the eventual buyer and seller on the market. If the market has demand, this agency will supply the precious metal. SBV sold 1,517,200 taels of gold, or nearly 58.4 tonnes, via 57 auctions out of 1,622,000 tonnes or 62.4 tonnes of gold offered.

 

The reference price on September 12 was VND38 million per tael, equal to that of SJC gold. Gold traders made slight changes to quotations in the morning, showing immediate effects of the gold auction market.