The recent gold frenzy has exposed several weaknesses in market regulations and it's time to set up an official exchange to put gold trading back in order, experts said.
Vietnam's gold market is highly dependent on world prices, economist Le Tham Duong said.
"The country has large gold holdings but most are kept by the public and banks. As the flow for this gold supply has been obstructed, speculators can push up prices, like they just did recently," he said.
According to the State Bank of Vietnam, the public holds between 300 and 500 tons of the precious metal while banks have about 100 tons of gold deposits. Banks have been banned from selling or lending these deposits.
The price of gold surged past VND46 million per tael for the first time last week. The hike followed a global surge but the central bank and analysts believed it was mainly driven by speculators at home.
Duong said such a price trend is not new and it could happen again "unless there are fundamental solutions to market problems."
"The tight control over gold imports, and not on gold exports, has allowed traders to ship nearly 40 tons of gold. When a new tax policy was introduced to curb exports, the country already had to start importing gold again," he said.
The Ministry of Finance on August 6 imposed a 10 percent export tax on jewelry that has more than 80 percent gold content. The tax previously applied to jewelry containing more than 99 percent gold.
By then, gold exports for the first seven months had reached US$1.8 billion, as traders were taking advantage of world prices that had been significantly higher than local prices.
Last week, in an attempt to cool down the local gold fever, the State Bank of Vietnam allowed the import of five tons of gold.
But Duong said the move may not benefit the market in the long run. "Gold investors and traders now know that as long as there is a shortfall in the market, import quotas will be granted," he said.
In a commentary carried by Lao Dong newspaper last Sunday, economist Nguyen Quang A said the chaos in the gold market last week was mainly due to domestic factors, including falling public confidence in the dong and "tactics" of speculators.
"Many things need to be done to prevent a similar chaotic situation in the future. This is in fact a challenge for the new central bank governor and the new cabinet," he said.
A said Vietnam has let gold trade thrive without any strict regulation. A plan to introduce new restrictions has not been finalized yet, he said.
"For a long time the authorities did not know how to deal with gold properly due to ongoing arguments over whether to define gold as a currency or a commodity," Duong told Thanh Nien.
Even though the government has restricted gold trading and lending by banks, the market continued to see sharp fluctuations in prices, he said.
Vietnam needs to have a gold exchange to attract public gold holdings and put them into use, Duong said.
"There is substantial demand for gold trading. When gold exchanges were still operating, their total trading value could reach 20 tons a day," he said. "An official exchange will allow the authorities to manage the gold market better."
Vietnam last year shut down around 20 gold trading houses run by banks and financial firms on concerns their operations were too risky for the financial market.
The Vietnam Gold Traders Association said since the exchanges were closed, the domestic gold market has completely transformed into a physical gold market.
This is against the global trend, as 80 percent of gold trading activities in the world are made via accounts, the association said, adding that bullion trading can lead to extra storage costs and loss of foreign exchange reserves through gold imports.
A national gold exchange will create a fair playground for gold investors and reduce gold hoarding, the association said. An official trading floor will also create a single gold price for the market and help authorities monitor trading activities more effectively, it added.