The “communicating vessels” principle doesn’t exist on gold market

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VietStock FI English - 35 month(s) ago 2 readings

The dollar price keeps decreasing and the demand is weak, while the international market keeps calm. Therefore, one would not be able to understand why the domestic price is still higher by far than the world’s market.

The gap between the domestic and world prices has reached 1.3 million dong per tael, which far exceeds the gap of 400,000 dong expected by the Governor of the State Bank.

After Tet, the demand on the gold market has been weak. According to Nguyen Thi Cuc, Deputy General Director of PNJ, the purchasing demand has dropped by 30 percent in January in comparison with the same period of the last year. Meanwhile, people do not rush to purchase gold to hoard up any more. However, the gap between the domestic and the world prices still has not been narrowed.

By the end of February 18, the domestic price reportedly higher by 1.3 million dong per tael than the world price, when most of the big gold brands in HCM City quoted the sale price at 44.7 million dong per tael, while the world’s closing price was 43.4 million dong.

Explaining this, Le Hung Dung, Chair of the Saigon Jewelry Company SJC, said that the domestic price does not “communicate” with the world’s price.

He said that the State Bank of Vietnam does not want to grant quotas for gold imports for fear that this would lead to the higher trade deficit. Therefore, the world’s price is just for reference, while it does not have big impacts on the domestic prices.

At present, people only buy or sell the gold which has been kept in the country, while no new supply source has appeared. Meanwhile, when the world price reached 1727 dollars per ounce, Vietnam could not buy gold from other countries.

Also according to Dung, SJC has provided 19.2 million taels of gold so far, or 700 tons, worth 400 trillion dong. The volume of gold is now lying among people. Therefore, in order to stabilize the gold market, the government should reconsider the gold interest rates. If banks continue offering the modest gold deposit interest rates of less than two percent, it would be impossible to attract gold depositors.

Meanwhile, analysts have urged the government to try to mobilize gold from the public, saying that the gold would help restrain the dollar price, ease the foreign currency bleeding caused by the illegal gold import activities.

Director of a gold company in HCM City said that he decided to set up the gold prices at high levels after considering the situation. He said that the high prices could be the prices in the world market if there is any fluctuation.

Analysts also said that the gold prices are really unpredictable and changeable. If Vietnamese gold companies set up their prices closer to the world market, they would incur losses if the world market fluctuates. As the domestic and the world markets are not “communicating vessels,” enterprises would not be able to respond to emergency.

Though the demand is not high at this moment, gold companies still set up sale prices at high levels, because they always refer to the prices of other businesses. “In general, small companies usually follow the moves by the big guys,” the director said.

Meanwhile, an economist, who was the member of the National Advisory Council for Monetary Policies, affirmed that the factors cited by gold companies are unreasonable. He said that the companies have no reason to keep the gold prices sky high.

He said that the government decree on the gold market management which is expected to come out soon needs to stipulate clearly how to define the gold prices. It needs to stipulate what formula to be used to define the sale and buy prices, how high the margin between the buy and sale prices should be, and how much the gap between the domestic and world prices should be.

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