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Many say gold prices can only weaken   2010-05-20 - Tuoi tre

Vietnamese who were investing in gold got in the habit of buying when prices went up, thinking they would rise further.  Now it seems that they have changed their business strategy, and are trying to buy only when prices go down and sell when prices go up.


Gold trading firms surveyed by Tuoi Tre all said that banks as well as small investors are trying to sell gold now, while prices are still high. There aren’t so many buyers, though.


Banks have had enough gold


The world gold price has eased steadily during the last week, from above $1250 per ounce to $1,204 on May 19, a drop of nearly 1.2 million dong per tael. However, the price at Vietnamese gold shops has decreased by only 480,000 dong per tael.


A representative of SJC, the nation’s biggest gold dealer, said that it’s not demand that’s causing gold’s domestic price to decrease more slowly than the world’s price.  For the last two weeks, SJC has been buying more gold than it sells.


Nguyen Thi Cuc of Phu Nhuan Jewellery Company, the latest price increase was short-lived.  Over the last two weeks, Phu Nhuan Jewellery has bought five or six times more gold than it has sold.


It appears that speculators were hoping that demand would increase because banks needed to buy gold to settle their overseas accounts. However, Eximbank, Saigon Thuong Tin and other banks all said that they have already bought enough gold.  One executive boasted that his bank has made a fat profit by selling gold abroad at high prices and purchasing it in the domestic market for less.


Gold trading firms say that banks do not have to rush to buy gold at any cost at this moment, because the deadline for closing overseas accounts  has been extended to June 30.


Fundamentals do not support gold prices


A director of a gold company said that recent domestic gold price performance was driven by gold purchases by banks.  Now, however, banks are selling as well as buying.  On May 19, some banks which considered the domestic price still high sold gold to the market. These are banks which purchased gold when the prices were lower and are now seeking to take profits.


According to Sacombank Jewellery Company (SBJ), many enterprises are pushing sales while the world’s price is sliding. The gap between the buy and sell prices offered by gold shops has been widened to 200,000 dong per tael.


Nguyen Ngoc Que Chi, General Director of SBJ said that because the price gap now is not attractive enough for companies to produce and export jewelry products, gold companies have also stopped purchasing.  Because demand decreases, according to Chi, a price decrease is inevitable.


Fewer people are buying gold to hold as a store of value


According to Cuc, demand is weak.  What demand there is does not come from people who have the habit of keeping gold under their pillow as assets, but from  investors who are ‘surfing’ on gold investments. No one is paying for houses in gold now that the gold price hovers near 28 million dong per tael.


Cuc warned that people should think carefully if they are tempted to purchase gold as savings.  The gold price went up because of speculation, she said, but now the ‘smart money’ has fled from the market.


Dr. Le Xuan Nghia, Deputy Chairman of the National Finance Supervision Committee, also cautions against gold purchases at this moment, because the prices are still high, while the world gold price has been fluctuating all the time.


Earlier this year, many people predicted that the gold price would decrease when the dollar price increases. However, the gold price is now going the same direction as the dollar price. Meanwhile, now that the gold trading exchanges have been shut down, the demand for gold in the domestic market is no longer high.

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