Gold Demand Extraordinary In Vietnam – Paying $217 Premium Over Spot

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Today’s AM fix [14] was USD 1,386.00, EUR 1,038.59 and GBP 881.79 per ounce.
Friday’s AM fix [14] was USD 1,379.75, EUR 1,035.54 and GBP 882.76 per ounce.

Gold climbed to $1391.50/oz on Friday, its first close above $1390/oz in four weeks and silver climbed 1.2 percent to $22.07 an ounce.

Gold is marginally lower today in most currencies after last week’s small gain which was positive from a technical perspective. 

Geopolitical tensions in the Middle East looks set to again brandish gold's safe-haven appeal and will support prices. Gold is higher in yen today as the yen has fallen against all currencies.

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Demand in India and across much of Asia has fallen from the record levels seen in April but remains robust nevertheless which will support prices. Extraordinary demand from India and China has received all the attention in recent weeks while equally extraordinary demand in other Asian countries, such as Vietnam, has been completely ignored.

Cross Currency Table – (Bloomberg) [16]

The Vietnamese Central Bank sold another 25,700 taels (37.5 grams, 1.2 troy ounces) at a gold bar auction on Friday in order to try and satiate the massive public demand for gold in Vietnam.

The Central Bank hopes that the sale of gold into the market will reduce the very high premiums paid by gold buyers in Vietnam, the largest buyer of gold in Southeast Asia after Thailand and one of the largest physical buyers of gold per capita in the world.

Vietnamese people hold gold as a store of wealth for protection against war, inflation and currency depreciation. In recent months, the bursting of bubbles in the stock market (see chart) and property market and the continuing devaluation of the dong has led to record demand in Vietnam and a surging premium over the spot price of gold.

Today, the premium was close to 5.5 million dong which is the equivalent of a very high premium of $217 per ounce over spot. 

Gold in Vietnamese Dong, 2000 to June 2013 – (Bloomberg) [17]

The premium reached an all-time high of more than $210 per ounce or 6 million dong in April, when gold prices were hammered by what appeared to be manipulative selling on the COMEX futures market. 

The Vietnamese Central Bank has held sales since the end of March to help banks return deposits by June 30. So far 709,800 taels, or about 27 tons, have been sold in 28 auctions through June 7, according to the bank.

It is hoped that the gap between domestic and global prices for immediate delivery will probably drop to 4 million dong a tael ($158 an ounce) by the end of July, according to Nguyen Thanh Truc, vice chairman of the Vietnam Gold Traders Association.

Vietnam Stock Index – 2000 to June 2013 – (Bloomberg) [18]

Vietnam’s central bank has, like the Reserve Bank of India,  tightened rules on gold trading. These include making itself the sole importer. This is an attempt to limit gold demand, the impact of gold prices on the exchange rate and in a misguided attempt to prevent a further devaluation of the dong. 

As part of the drive, banks must return all gold deposits to investors by June 30, while the State Bank of Vietnam is selling gold to lenders and trading companies to boost domestic supplies.

Vietnam consumed 77 metric tons of gold last year. This compares favourably with massive gold buyers in India and China - 864.2 tons in India, 776.1 tons in China, where the populations are over 1 billion. Vietnam has a population of just 87 million and thus is one of the highest buyers of physical gold per capita in the world. 

Purchases of physical gold between 2011-2012 accounted for over 3% of GDP.

Interestingly, property prices are often quoted in taels of gold rather than the local currency due to the Vietnamese experience of monetary inflation and currency debasement.

“The stricter regulatory measures implemented by the State Bank of Vietnam and the fear of a steep decline in gold’s price may affect gold demand temporarily,” Albert Cheng, Far East managing director at the council, said in an e-mail. 

“In the long run, for the majority of Vietnamese, particularly those who have lived through the war years and the ensuing economic regression, gold is still considered as the favorite tool for saving and investment.”