The chance of gold

For Nguyen Van Thu, a career securities investor in HCMC, making money never looks so simple. He purchased last month a 140-square-meter house on Tran Binh Trong Street in HCMC's District 5 for 1,000 taels of gold, with payment made in the Vietnamese dong. Now the gold price surges, bringing him a profit of at least VND1.5bil.

"Somebody is offering to buy my house at the same 1,000 taels, and if I sell it now I can gain 100 gold taels," he says. When the deal was settled a month ago, gold was around VND15.5mil a tael, or 1.2 troy ounces. This week, the yellow metal has leapt to VND16.52mil.

Thu is not a gold speculator, but the fact that he can earn 100 taels of gold overnight thanks to the surge in gold prices has now intrigued him. In fact, innumerable people and institutions have jumped into gold trading these days in a hope to make quick gains, especially at a time stock trading has lost its appeal.

One year ago, real estate and the tock markets were still the key channel to drain money from the market, especially from individual investors. However, as new regulations have put real estate speculators under tenterhooks, and as the stock market in the past few months has become stagnant, it is gold that glitters, attracting those quick-mind investors, individuals and institutions alike.

Gold appeal

Many investors like Thu have already switched attention to gold. A shred of evidence is that individuals last week traded a significant 100,000 gold taels with Asia Commercial Bank (ACB) on one day only. That means a huge sum of VND1,650tril.

However, most of such traders are speculators rather than investors, but speculation is not always bad. Says an economist: "There'll always be people speculating - on land, stocks, exchange rates, even horse races. You have to let them play."

More institutions are jumping on the gold band wagon as well. Vietnam Export-Import Bank (Eximbank) has recently cooperated with Saigon Jewelry Holding Co. (SJC) to set up a new joint-stock bullion trader.

Eximbank also mulls a gold exchange like that of ACB. Meanwhile, Saigon Thuong Tin Commercial Bank (Sacombank) is about to establish a gold trading offshoot.

ACB has launched a gold exchange since late May, the first of its kind in Vietnam. Still, this is a venue for corporate traders only. Last week, the exchange was busier than ever, with as many as 40,000 taels settled in one particular day. Give the transaction fee of VND1,000 a tael, and ACB pocketed a lot that day.

A source at the joint-stock bank says his institution earned VND200bil from gold business alone last year. The figure is even bigger than the total earnings of a mid-sized commercial bank here and lucrative enough for new market entrants.

ACB's exchange has nine floor traders and already received many new applicants. Each trader is required to deposit a certain amount of gold and/ or cash at the bank for transactions. They buy and sell gold on margin, but in fact, no gold accounts have been allowed yet under prevailing laws.

A deposit equals to 5% of the value of a single transaction. For example, if a trader wants to buy 1,000 taels, he or she must deposit amount of cash equivalent to 50 teals.

And if he deposits 100 taels, the trader can place orders to sell a maximum amount of 2,000 taels. The exchange benefits ACB not only in terms that the bank can pocket transaction fees but also that it can use the deposits by traders to make loans.

Liberal policies petitioned

As mentioned above, current laws do not allow people to open accounts in the yellow metal, so all transactions now are made in physical gold only.

There are still controversies over this issue. Commercial bankers argue that it is not reasonable for people to carry bags of gold on the street as they may be victims to robberies. Some also question why local traders can open gold accounts abroad but not at local banks, and why companies can open accounts in commodities such as coffee but not gold.

The central State Bank of Vietnam, however, fears that once people open accounts in gold, the metal may become a more common payment tool, and so economic uncertainties or a recession of any big economy elsewhere in the world may affect Vietnamese people.

For example, the housing crisis in the U.S. has pushed global gold prices to new record highs, thus sending the local gold price up and as a result, many people here failed to buy houses.

A common place, or particularly a gold exchange, for individuals is still absent as well. It took ACB two years to gain permission from the central bank for the exchange - but for corporate traders only, not individuals. A too much prudent policy may do harm than good as it will eventually create informal trade. For example, jewelry firms are not permitted to make gold loans, but in reality, many do.

ACB wants to link its exchange with the overseas ones but only if gold accounts at local banks are allowed.

Besides, some local traders have proposed that the central bank should allow them to export gold grains and bars to increase the connectivity between the local and global markets, especially when prices were higher here than elsewhere.

One says, "To some extent, we can say, the central bank doesn't want to see foreign currency flowing out of the country. But in reality, it allows us to import gold only. Why not exporting? We think it should also allow gold exporting because once we export, we'll bring foreign currency home."

Local traders, including banks and jewelry firms, reportedly imported some 50 tons of material gold last year, half of the total amount in 2006.

Despite the market has yet to be unleashed, and development of the bullion trade remains to be seen, the activity in this sector has been booming over the past few years with the involvement of both individual and institutional investors.

The fluctuation of the gold price, as seen in the recent past, always offers opportunities for sharp thinkers, and well as those jockey men at random like the stock investor Thu.

He does not expect the gold price to surge again so that he may make another 100 gold taels from his house, but he has now started thinking seriously, about a new trade, apart from securities where he is a practitioner. (SGT)