New draft drops ban on gold trade

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The wait is almost over.

Four months ago, the government announced its intention to end the widespread trade in gold bars on the black market, creating a sort of frenzy.

Fearing that gold bars would be banned completely, many Vietnamese consumers began buying up gold rings.

Major bullion producers responded by announcing plans to expand their jewelry businesses. Then there was talk of a plan to limit gold trade to one-way sales to the central bank.

Now that a new draft decree concerning the gold market has been made public, gold investors can finally breathe a sigh of relief. The latest version of the draft allows individuals to buy and sell gold at banks and authorized retail outlets.

The new decree will be submitted to the central government in the next few days and will only ban the use of precious metal as a means of payment.

Nguyen Thi Cuc, deputy director of the Ho Chi Minh City-based gold and jewelry firm PNJ, said many investors had given up on the market after learning about a government plan to restrict gold trade.

The new draft decree has assuaged their concerns and reignited investor interest, Cuc said.

Mixed bag

Gold bars have been used in the country as a means of payment for years, mostly in real estate transactions. The trend, however, is declining.

For gold traders and producers, the draft decree brings both good and bad news.

While the central bank has already ruled out any ban on gold bullion production and trading, it does plan to tighten its control over the gold market.

Under the decree, existing bullion traders will be required to apply for new business licenses from the State Bank of Vietnam. Each application will be reviewed by central bank officials. Authorized traders will have to meet requirements pertaining to the firm's capital, revenue and size (e.g. number of outlets).

Analysts said that, with 10,000 gold traders around the country, licensing would not be easy.

Many gold shops in Vietnam will be unable to meet all the requirements and will have to limit their business to the jewelry trade.

One deputy general director of a gold trading company, who wished to be remain anonymous, predicted the central bank would be overwhelmed with the massive task of licensing bullion makers and gold traders, in addition to overseeing their operations.

He also noted that new rules require existing manufacturers to obtain at least six different licenses before they can resume production and trade in bullion and jewelry.

Other critics say that the central bank's plan to tax and monitor gold imports and exports is simply overzealous. The process is currently managed by the Ministry of Finance and the Ministry of Industry and Trade.

Despite its broad scope, the draft decree does not contain provisions for the creation of a national gold exchange. Many experts have called for an official exchange, where investors can trade gold legally.

Last year, authorities shut down about 20 gold trading houses run by banks and financial firms, fearing that their heavily leveraged operations were too risky.

Le Xuan Nghia, deputy head of the National Financial Supervisory Committee, told Thanh Nien that he supported a new rule under the draft decree aimed at boosting gold holdings for the national foreign exchange reserves.

Nghia stressed that such a rule is necessary for making gold economically useful, he said.

At a meeting held earlier this month, Nghia estimated that Vietnam's total gold holdings ranged between 20 to 45 percent of the country's GDP. News website VnExpress quoted him as saying that most of the nation's gold was currently held by private individuals, while official reserves remained insignificant.

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