Vietnam's new gold trade rules will hurt consumers: experts

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Bao Tin Minh Chau gold bars are displayed for sale at a gold shop in Hanoi

Experts say gold buyers may fall victim to new restrictions planned for the bullion market, with concerns rising over potential monopolistic control.

Dinh Nho Bang, vice chairman of the Vietnam Gold Traders Association, said the plan to reduce the number of gold producers and traders can end up hurting consumers.

Under a draft decree introduced by the State Bank of Vietnam late last month, gold bar traders will be required to have a minimum capital of VND100 billion (US$4.76 million) and a presence in at least three major cities. The rules aim to restore order for the market, now housing more than 10,000 traders.

The association of gold traders said in a recent petition sent to the central bank that these requirements will make it difficult for the public to buy gold bars. While gold is no longer used widely as a means of payment and valuation in Vietnam, many people still want to keep gold holdings, which is a long-lasting tradition, it said.

Policy changes regarding gold trading will have a significant impact on daily lives, the association said, noting that new restrictions could drive consumers toward gold jewelry, whose quality is not always assured.

The central bank's draft decree also requires gold bar producers to have a capital of at least VND500 billion and a minimum market share of 25 percent. This means Ho Chi Minh City-based SJC, the country's largest gold company, will become the only eligible producer because it holds more than 90 percent of the market.

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Bang said consumers can now choose from eight different gold producers and the new restrictions will take away this choice.

According to his association, the central bank should reconsider the regulations under the draft decree. The government can instead try breaking the habit of keeping gold by opening a national trading exchange for the metal. This will create an official playground for investors and at the same time set a single gold price for the whole market, it said.

The petition of gold traders came after some economists warned about the emergence of a black market for gold bars. They said the new trading restrictions could lead to a supply shortage and a black market, similar to the one for US dollars, would pop up.

The first sign of problems for the market has already surfaced.

News website VnExpress reported Tuesday that many people, fearing gold bars bought from companies other than SJC will lose value, have decided to cash out their holdings and buy SJC gold.

Le Phuong Hoa in Hanoi, who just bought gold from Bao Tin Minh Chau last week, said she was willing to pay some more money to switch to SJC products. "It's strange to see prices of Bao Tin Minh Chau gold bars falling," she told VnExpress. "I'm worried about losing more money later so I sold my gold to buy SJC bars instead."

Bao Tin Minh Chau, one of the top traders in Hanoi, said sales of gold bars have been far exceeded by the amount of gold repurchased from customers. The company is facing a cash crunch and it had to lower prices to boost sales, it said.

Some analysts believe the company is taking the first step in an attempt to withdraw from the market. Economist Dinh The Hien said gold companies may take measures to clear their stock before the new regulations come into practice.

Professor Le Dat Chi of the Ho Chi Minh City Economics University said in the end consumers are the ones losing out the most.

"The regulations under the draft decree will leave only SJC products in the market. For those who have bought gold of other producers, who can they sell it back to?" he asked.

Chi said he doubted gold companies, except SJC, would be interested in buying back their gold once they have to stop production. "Even if they do, they will offer low prices because they will have to sell the gold to SJC later to be rebranded as SJC products," he said.

"Unsound policies are just making things even more complicated for the market," Chi told Thanh Nien.

Nguyen Thi Cuc, deputy general director of PNJ, told VnExpress the draft decree does not require existing gold bars to be pulled from the market. The public should stay calm, she said, adding it will not do them any good to rush to sell their gold at low prices.

"This is just a draft decree so the public should not be worried," said Nguyen Thanh Truc, chairman of Agribank Gold Corporation. "Even if the decree takes effect, Agribank will try to buy its gold back at prices at least equal to international prices, depending on market trends."

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