Viet Capital macro analyst Phong Nguyen has a stark warning for Vietnamese investors today: " We believe it’s time to get out of gold before it’s too late."
Vietnam's domestic price of gold has been much higher than the international price of gold – and Vietnamese authorities have been struggling to control gold speculation as the spread between domestic prices has widened (see chart).
Nguyen thinks the latest effort to close that gap could smash Vietnamese gold investors.
In October, it was revealed that Vietnamese banks had been selling gold held by depositors in their vaults for cash, and the banks were then forced to start buying back gold to return to their clients. Since then, the State Bank of Vietnam, the country's central bank, has been trying to get a handle on the gold market.
While the SBV has been having trouble taking control, Nguyen believes that is all about to change.
In a note to clients, he writes (emphasis added):
Banks would benefit. Commercial banks have to close out all of their gold deposit positions by 30 June 2013 per Doc. 7019/NHNN-QLNH. Banks like ACB, who have large gold operations, have been rushing to buy gold in the last few months to comply. This led to the wide spread in domestic/int’l prices. The SBV had also requested some banks to sell gold to help stabilise the market. Some of these banks even incurred losses as they bought back gold needed to cover gold withdrawals. Under the circular, the SBV would have the right to import gold from global markets to resell to domestic banks (and authorised gold traders). This would help banks avoid losses as they close out positions to meet the deadline.
Investors long on gold would lose. Going forward, banks would have no need to go out on the domestic market to purchase gold anymore. We think the domestic/int’l spread will narrow rapidly and may be eliminated altogether. Furthermore, international gold prices have been on a downward trend, dropping 7% since early October 2012. Expectations that the rechanneling of investments from gold to stocks was one of the main reasons the stock market reacted quite positively on Friday.
Gold investors around the world have been feeling the pain as the market has sold off since October. Now, the Vietnamese – around 31 percent of which are gold holders – may be about to get a taste of the same.
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