The market for gold rings has taken off as the government continues its move toward restricting the private trade of gold bars.
Trade in the jewelry items has become positively frenzied in Hanoi's gold shops, since the government publicly announced its plans to strictly regulate the gold trade, in late February.
"Gold bullion is expected to be banned," said Nguyen Thi Thanh, a 50-year-old retiree, as she waited to be rung up at a shop on Hanoi's Tran Nhan Tong Street. "So now, I purchase gold rings. They're also easy to resell, when I need money."
In a move to curb inflation and stabilize the macro economy, the government has announced plans to eliminate Vietnam's unofficial trade in gold ingots.
Jewelry is exempt from the proposed ban.
For a culture with a long tradition of maintaining its savings and conducting large transactions in gold, a loophole to the proposed ban appears to lie in rings. The plain gold rings that Thanh and many others are buying will hardly ever be worn as jewelry, but they serve well as a form of savings.
"The demand of locals to maintain their savings in gold to protect their assets or invest their wealth is quite legitimate," said Do Minh Phu, chairman of the management board of gold firm DOJI, and vice chairman of the Vietnam Gold Business.
He said his firm's gold rings have recently sold like hot cakes. Every day, Phu says his firm sells 150 taels (or around 180 ounces) worth of gold rings in Hanoi alone.
Meanwhile, traders from neighboring provinces purchase some 60 ounces worth of gold rings each day. Phu expects that the trade will only increase in the near future.
Vu Minh Chau, director of Bao Tin Minh Chau gold trading firm, said his company's trade in gold rings increased 200 percent in the past few weeks.
In the same period, he said, gold bullion business fell by 30-40 percent.
The rings, which weigh roughly 1/2 to 1/5 of a tael, are the best selling, he said. "People's demand for the products is very big," he said. "Although we have expanded production, it has not yet kept up with customer demand."
In the past, the price of gold bars exceeded that of gold rings.
On Thursday, gold bullion sold at around VND37 million (US$1,770) per tael in Hanoi. The same day, gold rings traded at VND37.05-37.1 million per tael. A tael is equal to 1.21 ounces of gold.
Challenges to small firms
Chau said the current ring market reminded him of a time, twenty years ago, when no gold bullion trade existed in Vietnam.
Gold rings were very popular then. At the time, however, they weren't strictly monitored in terms of quality and weight, so traders often worried about their actual value.
Today, gold bullion is minted in Vietnam by prestigious firms"”their weight and quality always corresponds to the information carved into their surface.
Phu of DOJI said it is more difficult to trade gold rings, as gold shops have to weigh them and assess their purity during each transaction.
Since gold purity levels vary from 95 percent to 98 percent, gold shops often shy away from buying rings made by other shops for fear of low purity.
Ring traders and investors also run a risk not seen in the standardized bullion market.
These days, some sellers are offering to buy back their own rings for VND400,000-500,000 less than the sale price.
In addition, it is easier to fake the gold rings, so people should be cautious when buying them, Phu said.
"Buyers should only purchase gold rings from prestigious shops with famous brand names," he said.
The Vietnamese habit of maintaining savings in gold and its prominent role in the culture have pushed holdings of the precious metal to between 300 and 400 tons, he said.
Chau of Bao Tin Minh Chau said small gold firms will find it hard to compete in the new economy as customers will likely gravitate toward large firms, which have stable material supplies and can guarantee the weight and purity of their products.
"Many small firms may have to work as agents for big firms if they want to survive in the market," Chau said.
Phu said his firm's business now mainly focuses on gold jewelry, but not on gold rings that are primarily used as currency. Going forward, his firm plans to strengthen the production and trade of high quality gold rings, necklaces, and bracelets.
The products could be used mainly as decorative jewelry, but still "serve as a means of savings," he said.
His firm will determine its new concrete direction only after the government issues an official decree on the gold trade, Phu said.
SJC, Vietnam's biggest gold bullion trading and processing firm, said that trade in gold jewelry accounts for only 10 percent of its total revenues. The bullion giant anticipates that its business will be affected if the government's proposed restrictions are implemented.
To cope with the new situation, the firm plans to boost its production and trade of gold jewelry, accelerate the construction of a large-scale jewelry workshop, and seek new avenues for its business.
Chau of Bao Tin Minh Chau said his firm is also strengthening production of jewelry items to serve the demand of savings.
"We are installing more equipment and employing more laborers," he said. "We will produce more bracelets and necklaces valued at one or two taels."
He said when the government finally makes its move, the trade of gold rings will increase.
"At first, the demand will be higher than the supply, as producers have not enough time to expand jewelry production," he said. Due to that gap in supply and demand, the market of gold rings will certainly be vibrant, he said.