Decree 24/2012/ND-CP on gold business management will come into force from May 25 and National Financial and Monetary Policy Council member Cao Si Kiem said current bottlenecks needed to be tackled if the market was to prosper.
How will the market react to the decree?
If current bottlenecks in the bullion market are not removed this could give room for gold traders to dodge the law.
The first bottleneck is we have failed to mobilise idle gold from the community and the second bottleneck is the gap in domestic and world gold prices.
State Bank governor Nguyen Van Binh assumed a gap between world and domestic market gold price of VND400,000 ($19) per tael would be acceptable, but in fact the difference is usually VND2-3 million ($95-$140) per tael, showing the bullion market is still driven by ‘psychology’ and ‘price manipulation’ factors.
To get local gold prices matching world prices, the state must entirely control the import-export of gold. A step forward in Decree 24 is the state holding monopoly in gold bar production and trading.
Should Vietnam green-light account-based gold trading to achieve uniformity in world and local market gold prices?
Account-based gold trading is a way out of the gold market problem, but this move should be green-lighted only when the state could take rein of it to ensure healthy performance.
The State Bank is drafting a circular to revise the Circular on Foreign Exchange. Accordingly, account-based gold trading would get the go-ahead only when it was approved by the prime minister and licensed by central bank. In current context, that is a right move.
There will still be a big gap in world and domestic market gold prices if the state does not have big gold reserves to interfere in the market. How can idle gold be mobilised effectively?
Around 500 tonnes of gold is currently kept in the community. To raise this gold, first a mechanism should be in place to ensure profits for gold depositors. Second, ensuring profitability of mobilised gold stock and third estimating temporary gold stock to ensure security is key.