Banks turn their backs on gold

Thursday, Aug 07, 2014 17:42

When the prices of gold are set stable in the local market, fewer banks and investors participate in the field. — Photo

By Minh Huong

Ha Noi (Biz Hub) – In July 2013, the Tien Phong Commercial Joint Stock Bank (TPBank) opened its first-ever online gold trading (eGold) service to meet the demand from local gold investors.

However, the service was stopped for "maintenance" reasons five months later and was never restored.

The sudden shutdown of TPBank's eGold service happened at a time when most commercial banks were reducing their gold-trading activities.

The reduced participation of banks in gold-trading services was the result of the State Bank of Viet Nam (SBV)'s intervention in the gold market since March last year.

On March 28, 2013, the central bank opened the first-ever gold auction as a measure to stabilise the local gold market, where fluctuating prices of the metal were benefiting a group of speculators.

At that time, a tael of gold was sold at VND43 million (US$2,047) in Viet Nam.

The metal had reached a record price of VND48.3 million ($2,300) in October 2012, which was VND8 million ($380) higher than the price in May, when one tael of gold cost about VND40 million ($1,904).

After 10 months, the SBV sold 1.82 million taels, or 69.9 tonnes, during 76 gold auctions. Consequently, the local gold prices were fell to VND36 million ($1,714) per tael in December 2013.

Since then, SBV has not organised any gold auctions. In SBV's report on August 4, the central bank said that as the local gold market has stabilised, it has halted gold auctions.

Before SBV's intervention, most commercial banks conducted gold-trading activities because the metal was a "hot" item that attracted a lot of investors. However, it seems banks have turned their backs on the precious metal now.

Now, gold is rarely purchased in banks. According to SBV, there are 22 commercial banks which are eligible to trade in gold bars, but they are indifferent to it.

The branches of big commercial banks such as Vietcombank and BIDV have stopped trading in gold bars. Other banks refuse to trade in small amounts of gold.

SBV also reported decreased gold demand from banks where gold loans have also declined.

Vu Minh Chau, general director of the Bao Tin Minh Chau Gold and Jewellery Company, told local media that even experienced gold businesses face more difficulties in gold trading, adding that it was understandable if commercial banks wanted to quit the field.

Banks are not only less eager to do gold trading; they also don't want to maintain the gold-keeping service. Among the 16 banks which are licensed to offer the gold–keeping service, only a few operate it. Most banks encourage their customers to use the safe deposit box service instead.

Economist Nguyen Tri Hieu said banks used to take their customers' gold as bank capital. With the central bank imposing strict regulations on the service, the gold-keeping service now has high costs while the returns, in the form of fees, are small.

A representative of NamABank told that the gold-keeping service was maintained only to retain customers rather than earn profits. The fees for gold-keeping range between VND8,000 ($0.4) and VND15,000 ($0.7) per tael per month, while the safe deposit box service costs the customer VND120,000 ($6) per month.

For local gold investors, short-term investments in the yellow metal are no longer attractive.

"Some investors earned a lot when the prices fluctuated millions of dongs just a few days before the central bank's intervention," Nguyen Binh Minh, a freelance investment consultant in Ha Noi, told Biz Hub.

Minh said "that opportunity belongs to long-term investors only."

Minh now advises most of his clients to invest in the stock market which has been performing well since early this year.

Luu Linh, another small investor, told Biz Hub she now prefers to buy gold as small rings at lower prices, rather than buy the state-owned SJC gold bars because she can purchase for smaller amounts, and the prices are closer to the international gold price.

On August 7, a tael of SJC gold was listed at VND36.73 million ($1,748), while a tael of gold (in rings) was sold at VND34.06 million ($1,621). Compared with the current price of $1,573 per tael on the global gold trading floor,, each tael of SJC gold bars was $173 higher than in the world market, while one tael of gold in rings was only $48 higher. — VNS

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