Seven commercial banks and four businesses attended the SJC bullion gold auction held on April 23, where 16,800 taels of gold were up for auction.

Only two of them won the auction to buy 34 lots of gold, or 3,400 taels. The highest winning price was VND81.33 million per tael, while the lowest was VND81.32 million. The winning prices were VND620,000-630,000 per tael higher than the reference price of VND80.7 million.

So, 80 percent of gold went unsold on that day. Prior to that, the State Bank of Vietnam (SBV) had to cancel the auction slated for April 22, because there were not enough participants.

Gold auction not attractive 

Huynh Trung Khanh, deputy chair of the Vietnam Gold Business Association, said the unsalability is attributed to the overly heavy price fluctuations in the world market. From April 22 night to April 23 morning, the gold price dropped by $60 per ounce.

Khanh also thinks that the reference price set by SBV (VND80.7 million per tael) was still high, which caused businesses to hesitate to place bids for fear for risks.

Moreover, the current regulations made businesses shrink back. The minimum volume one market member can bid is 14 lots (1,400 taels), worth roughly VND113 billion. As such, bidders have to accept to pay a relatively big amount of cash but they are not sure about profits or losses. This is also a reason for bidder’s hesitancy.

“Some member companies told me that the required minimum bidding volume is really high, while the second quarter is the low sale season in the gold market,” Khanh said.

“When world prices tend to fluctuate heavily, gold companies may take a loss if they cannot sell out the gold they ordered via auctions,” he explained, adding that the required minimum bidding volume should be just 500-700 taels.

According to Ngo Tri Long, a respected expert, the gold prices in the international market fluctuate all the time and are unpredictable. Meanwhile, gold companies in Vietnam just buy volumes of gold large enough for sale, but they don’t speculate in gold. 

He went on to say that gold auctions just aim to explore the market, and the current situation is no surprise.

While believing that auctioning gold is just a temporary solution to improve the supply at this time, Dinh The Hien, a well-known economist, said that auctioning gold is a safe solution to increase supply. Gold will be sold to those who pay higher prices, close to market prices.

However, Hien warned that gold buyers at auctions face risks, even if they can buy gold at prices lower than market prices.

“Gold prices may go down at any time though they are on the rise today. The current gap between domestic and international prices remains large. Therefore, only companies with huge resources which can predict demand will participate in the auctions,” Hien said

Technical solutions 

According to Khanh, if SBV continues to organize auctions, it should rethink the reference price scheme. It would be better if the reference prices are SJC’s prices of the previous days, or earlier prices on auction days. And the reference prices could be equal to or lower than the company’s purchase prices.

The central bank needs to halve the required minimum volume of gold businesses can order for each bid, because this will attract more bidders.

Long suggested to analyze the international and domestic situations as well as predict  gold price trends. It is necessary to find out how high gold demand is at this moment.

“I think SBV should continue organizing auctions in the time to come, however, it needs to learn about demand. The volume of gold to be put into auctions needs to be determined based on reasonable calculations so as to attract more participants,” he said.

He suggested that in addition to setting minimum prices, it is also necessary to set maximum prices, i.e., gold companies must not sell gold higher than ceiling prices if they win the bidding.

Manh Ha