With the government taking over production and trading of gold bullion, there are fears that a black market may soon emerge.
A new government decree gives complete control over gold bar production as well as the export and import of gold for casting bullion to the State Bank of Vietnam.
The decree, which takes effect May 25, also tightens regulations on trading bullion traders will be required to have a minimum registered capital of VND100 billion (US$4.8 million) and a presence in at least three provinces or major cities, and pay at least VND500 million in tax per year.
"The state monopoly will help moderate the market and reduce speculation and price manipulation," Le Tham Duong from the Ho Chi Minh City Banking University said.
However, as only a few firms can meet the new requirements, the number of shops trading gold bullion may be not enough to serve the market, facilitating the establishment of a black market, Duong said.
"Firms may register to trade gold jewelries only, but still conduct illicit trade of gold bullion," he added.
ACB, Dong A, Eximbank, Sacombank, and Techcombank were ordered to report about their plans for setting up gold trading networks, implying they have been chosen to sell bullion, according to experts.
SJC, the HCMC-based company which holds 90 percent of the bullion market, has been asked to do the same.
Gold shops open every day while banks are closed weekends, meaning people cannot sell gold in an emergency, Duong said.
The banks and SJC do not have enough outlets either, especially in remote and mountainous areas, he said. "So we should beware of a black market in gold bullion."
Former central bank governor Cao Sy Kiem is also concerned about contraband gold trading if the market is not carefully monitored.
According to some analysts, the change is not enough to narrow the gap between domestic and international gold prices and put individual gold holdings to good use.
Local prices are consistently at a premium to global rates, widening early this week to VND1.9-2.1 million per tael, or 1.2 ounces.
Duong said the price gap could be narrowed if the metal is allowed to be traded through exchanges, but the new decree does not say much about this.
Dinh Nho Bang, deputy chairman of the Vietnam Gold Traders Association, said trading via exchanges should be allowed, creating a legal framework for people to invest in gold and enabling the government to manage gold trading and prevent risks.
The new decree allows people to buy, sell, and own gold, but prohibits the use of the precious metal as a means of payment.
Duong said the implementation of the new regulation will face many difficulties at first, mainly because gold is still used as a means of payment. "To effectively manage the gold market, the value of the dong should increase. So inflation must be curbed."
Big blow to small firms
There will be a one-time issuance of licenses to gold traders meeting all the new requirements, with existing ones given six months to close down.
The central bank will license the import and export of gold whenever necessary.
Nguyen Quang Huy, head of the central bank's foreign exchange department, has said a period of more than seven months is enough for existing businesses to either apply for the license or switch to other businesses like jewelry trading.
The boss of a large Hanoi-based gold firm said only banks and a few large traders would be eligible for a license under the new rules.
Some may want to switch to producing and trading gold jewelry, but there may not be enough time for them to do so, he said. "They need more time and more money for renting showrooms, training employees, and buying machinery and equipment."
Hundreds of gold shops in HCMC would have to soon stop trading bullion.
Most of the 2,000 shops in the city are small, with a capital of less than VND10 billion, and would not be able to meet the new requirements, Nguyen Van Dung, chairman of the Saigon Jewelry Association, said.