After 11 years, SBV has once again organized gold auctions aiming to increase the gold market supply, thereby narrowing the gap between domestic and international prices.

However, of three gold auction sessions organized by the central banks, two were canceled because there were not enough businesses attending the auctions. Only one auction succeeded on April 23, but only two of 11 registered businesses won the bids, and only 3,400 taels out of total 16,800 SJC gold taels sold.

Nguyen Huu Huan from the HCM C ityEconomics University believes that the auctions failed because of unreasonable reference prices. At the auction on April 23, the reference price, used to calculate the deposit money businesses had to pay, was VND80.7 million per tael. 

Meanwhile, the market prices at the same time were just VND82-83 million per tael.

“As the reference prices were too high, businesses could not see the possibility of making profit, so they did not attend the auctions,” he explained.

In this case, if businesses buy a large amount of gold and world prices unexpectedly go down, they will incur a big loss.

He said that the aim of the central bank to organize gold auctions is increasing supply, thereby making domestic gold prices come closer to the international prices. 

However, because of high prices, even if the central bank can sell hundreds of thousand of taels, it won’t be able to narrow the gap between domestic and international prices because of high selling prices.

“If businesses buy gold at auctions at over VND80 million per tael, they won’t sell gold below VND80 million per tael. So, putting gold into auction is just a temporary solution of the State Bank, and it will not influence the gold market at this time,” he said.

However, he noted that SBV has fallen into dilemma as it has to both stabilize the dong/dollar exchange rates and stabilize the gold market at the same time. 

As the dollar has appreciated rapidly in recent days, it is not feasible to import more gold at this moment.

Huynh Trung Khanh, deputy chair of the Vietnam Gold Business Association, said he wonders why SBV needs to set up reference prices that are higher than gold companies’ buying prices.

While gold companies buy SJC gold at VND82 million per tael and sell at VND84 million, the State Bank wants to sell gold at VND83 million. With this price, companies won’t buy gold, even if they can make profit if setting the selling price at VND84 million per tael.

“Gold companies set a gap between buying and selling prices at VND2 million per tael  in case international gold prices go down,” Khanh explained.

“They have to spend hundreds of billion of dong to attend bids and will only make investment if promising profits are VND1-2 billion at least. As they see risks, they won’t buy gold at the auctions,” he added.

Long-term solutions 

A question has been raised following the failed auctions about whether SBV should continue organizing gold auctions.

According to Khanh, auctioning bullion gold is an effective measure to increase domestic supply, so it would be better to continue to organize auctions. However, the central bank needs to adjust references prices. It is unreasonable if it wants to lower price differences but set overly high prices.

“Only when the reference prices are lower than market prices will the gold prices decrease,” Khanh said, adding that, with the current pricing scheme, the gold prices in the market would continue rising.

Agreeing with Khanh, Huan believes that if reference prices continue to be set at high levels, SBV will continue to see failures in the next auctions.

He said the reference price should be set at VND75 million per tael. If so, businesses could buy gold at sell at VND77-78 million per tael. With these prices, businesses can make a profit, and they can sell gold at prices lower than current market prices, thereby helping narrow the gap between domestic and international prices.

While bullion gold remains mostly unsold at auctions, people are rushing to buy gold rings, and many gold shops say they have no more rings to sell.

Manh Ha