Gold demand in Vietnam seen plunging as inflation slows

Bloomberg

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Buyers ponders jewelry in a shop in Hanoi. Photo: Tien Phong

Gold consumption in Vietnam, the largest Southeast Asian user after Thailand, will probably shrink by more than half this year after global prices fell, the currency stabilized and the government tightened rules.
Demand may drop to 25 metric tons to 30 tons from 60 tons to 70 tons in 2013, said Nguyen Thanh Long, chairman of the Vietnam Gold Traders Association, which represents traders, jewelers and banks with trading licenses. Citizens may be holding as much as 300 tons, he said, valued at $12.5 billion.
The predicted drop in sales adds to signs of slowing demand in Asia, which accounts for more than half of world consumption, after gold snapped a 12-year bull run in 2013. Goldman Sachs Group Inc. and Morgan Stanley expect further price declines. Decelerating inflation and more attractive opportunities in stocks, property and bank deposits eroded demand, Long said.
“When the economy was unstable and inflation high, people only trusted gold,” Long, 62, said in an interview. “Now people are seeking investment in stocks and property, and even simply depositing money at banks can give them good returns so demand has dropped sharply.” He traded gold for two decades and was the chief executive officer of Saigon Jewelry Co., the country’s biggest trader, for about 10 years.
Gold for immediate delivery fell 6.3 percent in the past year to $1,289.42 an ounce and slumped 33 percent from its record in 2011. The local premium over global prices plunged 85 percent from a record 6.98 million dong a tael ($274 an ounce) last April to a low of 1.03 million dong in March.
Domestic prices
Mounting tensions between Vietnam and China have triggered a recovery in local prices. Protesters rallied in Ho Chi Minh City and the capital Hanoi on May 11 after China placed an exploration rig in waters claimed by both nations. Many protesters in central Vietnam's Ha Tinh Province were incited by local gangsters to attack Chinese workers that left two dead. Some foreign-owned factories were forced to shut production.
While the domestic premium almost quadrupled from the March low to 4 million dong, Long said on May 19 he hadn’t seen any major changes in demand and was sticking to his prediction.
Consumption is also declining this year in Thailand. Imports may plunge to 150 tons to 200 tons this year from 314 tons in 2013 because of falling prices and the political crisis, according to YLG Bullion International Co., the largest local importer. Demand in China, the biggest consumer, may drop this year to the 2012 level, Dick Poon, the general manager at Heraeus Metals Hong Kong Ltd. said May 8.
Vietnam consumed 92.2 tons last year compared with 974.8 tons in India, 1,065.8 tons in China and 140.1 tons in Thailand, World Gold Council data show. Demand rose 5 percent to 19.5 tons in the first quarter from a year earlier, council data show. Albert Cheng, the managing director for Far East Asia, told reporters yesterday the existence of a “gray market” may help explain the difference with local estimates.
Sole importer
Decades of war, revolution and economic turbulence fostered an affinity for gold in Vietnam. Banks were accepting deposits and lending in gold until the central bank banned the practice in 2012. It made itself the sole importer and Saigon Jewelry the only legal producer of bars. The bank also limited bar trading to licensed facilities with stricter criteria.
The currency is little changed this year at 21,150 to the dollar, according to data compiled by Bloomberg. Inflation slowed to 4.45 percent in April from 23 percent in August 2011.
Global bullion prices will extend losses as the U.S. Federal Reserve trims its stimulus program, according to Goldman Sachs. The metal will drop to $1,195 in three months and to $1,050 in a year, the New York-based bank estimates.

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