VietNamNet Bridge – The gold put by the State Bank into auctions has been sold out, which shows the high demand for gold. People tend to hoard more gold when other investment channels get stuck.

Analysts previously all thought that after June 30, 2013, when commercial banks were forced to stop mobilizing and lending in gold, the demand for gold would decrease sharply, which would help narrow the gap between the domestic and the world prices.

However, contrary to all predictions, the demand for gold remains high, while the State Bank’s gold bids still enjoy large custom. Where has the gold gone?

A report of the State Bank showed that it has put 57 tons of gold into auctions so far this year. Of this amount, 30 tons have been sold to commercial banks, while the remaining has been sold on the market.

Since June 30, the gap between the bidding prices and the market prices has been narrow, not higher than VND340,000 per tael. The bidding prices of some buyers were just VND150,000 per tael higher than the market price.

Meanwhile, enterprises have to pay different kinds of expenses to retail the gold they bought from the central bank on the market. This means that the price gap is not large enough to bring them fat profit, while they would incur heavy loss in case the market prices fluctuate.

However, despite the high risks, the State Bank’s gold still has been sold out. Why do the enterprises and banks buy the gold to incur loss?

According to Pham Nam Kim, a former banker in Switzerland, Vietnamese always have high demand for gold which needs to be satisfied to ensure the stability of the gold market.

Swiss banks, the main suppliers for Vietnam, estimated that Vietnam needs 70-100 tons of gold ever year. The State Bank has sold 57 tons through bidding, including the 30 tons to commercial banks. This means that only 27 tons have been sold on the market, which is not a big amount at all.

In theory, the demand for gold would increase when the economy shows uncertainties. As for Vietnam, a lot of problems still exist, while the high inflation worry still has been hung over people.

Vietnamese want to inject money in gold, dollars, and properties to protect their assets’ values against the high inflation. However, all the investment channels have got stuck, which has prompted them to buy gold to defend themselves.

Kim noted that hoarding gold proves to be the best solution for now, if compared with securities, the prices of which have been fluctuating all the time, and with the real estate.

“If keeping gold, people can sleep well because they can preserve the asset value. Especially, they can make profits if the prices increase,” Kim said.

Economists have pointed out that the demand from commercial banks is also very high, while some of them have been trying to speculate gold. The State Bank has requested banks to report their gold positions daily and set a cap on the amounts of gold they can keep. However, the economists say the banks still have their ways to do what they want.

The world’s gold price is expected to escalate to $1,500/ounce in 2014.

Tran Thuy