More gold imports may pressure Vietnam's currency

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Vietnam's central bank has granted more quotas to import gold by year-end, in a bid to cool domestic gold prices, a local newspaper reported, though the step could increase pressure on the dong currency given the country's trade deficit.

Vietnam's January-November trade deficit eased 2.4 percent to $10.66 billion from $10.92 billion recorded in the same period last year, the government said on Thursday, well below a government target to limit it at 20 percent of exports.

The rise this year in the gold price and the dollar/dong exchange rate were among the reasons for higher market prices, Prime Minister Nguyen Tan Dung said on Wednesday, raising fears Vietnam's inflation for the whole year may jump to double-digit figures. On Thursday, the additional quotas did not have any impact on regional gold markets as the central bank's move was a continuation of its previous bid to cool domestic prices, a Singapore-based trader said.

The gold quotas will expire on Dec. 31 and with a volume higher than the previous permission in early November, the Saigon Economic Times newspaper said in its online report released late on Wednesday.

"As such, it will help gold trading companies to find the best opportunity to import gold," the report quoted an executive from one of the licensed gold trading firms as saying.

It gave no specific details on the volume of imports allowed and the central bank also did not disclose any absolute volumes in its previous quota.

On Nov. 9, the State Bank of Vietnam took steps to cool domestic currency and gold markets by announcing it would allow "reasonable" gold imports with quotas valid for two weeks and begin selling dollars to banks that requested them.

Onshore gold prices stood at VND35.95 million per tael at 0340 GMT on Thursday on the unofficial markets in Hanoi, close to the closing price of VND35.97 million on Wednesday and 0.45 percent off Nov. 24's peak of VND36.12 million.

The Saigon Economic Times report said at one stage on Wednesday onshore gold prices per tael were VND900,000 above world prices, which prompted some speculators to start buying dollar to fuel gold smuggling.

The dong fell to 21,310 per dollar on unofficial markets due to the sudden rise in dollar demand, from VND21,180 per dollar at the start of Wednesday.

On Thursday the dong advanced to 21,170/21,270 per dollar. Gold prices this month have jumped 36.24 percent from last November and also increased 23.31 percent since December 2009, the government's General Statistics Office said on Wednesday.

News on the grant of additional quotas came after the government released data on its consumer prices earlier on Wednesday, showing annual inflation hitting a 20-month high of 11.09 percent in November from the same month last year as food prices soared.

"The consumer demand for material and goods is rising high in the last months of the year; changes in gold price and the exchange rate have also influenced rising market prices," Prime Minister Dung told the National Assembly on Wednesday.

Annual inflation could reach 11.5 percent in December, Barclays Capital said in a report on Thursday, adding that it forecast 2010 average inflation at around 9 percent.

The Vietnamese dong could hit 19,800 per dollar in next year's first quarter ending March, while inflation would peak at around 13-14 percent in March/April and then gradually fall to 10 percent at the year end, the report said.

The dong was traded at 19,480/19,500 per dollar at 0345 GMT on Thursday in Vietnam's interbank market.

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