Gold Demand to Soar in Vietnam as 'Shelter' From Devaluations, Stock Slump

August 27, 2010

By Bloomberg News

Gold demand in Vietnam, which consumes more of the precious metal per head than India and China, is set to surge as the third devaluation in the past year and a stock-market slump combine to spur sales.

“People will switch to gold as a shelter,” said Le Xuan Nghia, vice chairman of the National Financial Supervision Commission, which advises Prime Minister Nguyen Tan Dung. “The current situation with the dong will spur people to increase their gold holdings.”

The government devalued last week to boost exports and shore up the nation’s trade deficit, driving the dong to a record low. Vietnam’s benchmark stock index has slumped into a so-called bear market, plunging by more than 20 percent from a May high. Gold priced in dollars reached a record in June on concern that the global recovery may falter.

“Gold and strong foreign currencies, like U.S. dollars, will draw investment from Vietnamese people, especially with the recent declines in the stock market and the devaluation of the dong,” said Nguyen Hoang, a Hanoi-based analyst at Vietnam Gold Business, which trades the metal for banks and companies.

Immediate-delivery gold surged to an all-time high of $1,265.30 an ounce on June 21 on concern that the economic recoveries in the U.S. and Europe were losing momentum. The metal was at $1,235.90 at 3:17 p.m. in Singapore today and is set for a 10th annual gain, buoyed by central-bank buying and increased investor holdings in exchange-traded funds.

‘Money in Gold’

“The dong’s depreciation, which has been about 5 percent already this year, plus declines in stocks and uncertainty in the property market, will prompt investors to put their money in gold,” said Dinh Nho Bang, Hanoi-based chairman of Vietnam Gold Traders’ Association, which has more than 100 members. “We’ve seen some economic growth, but it’s still not certain enough.”

Vietnam’s central bank set the daily reference rate for the dong 2 percent lower at 18,932 per dollar on Aug. 18. The currency traded at a low of 19,500 per dollar today, according to Bloomberg data, while the so-called black market rate at money changers was as low as 19,520 per dollar, according to a telephone-information service known as 1080 run by state-owned Vietnam Posts & Telecommunications.

Local gold prices jumped to a record 29.95 million dong per tael on Aug. 25, Thanh Nien reported yesterday, referring to the unit that is about 1.2 ounces. Today’s prices ranged from 28.86 million to 28.96 million dong per tael at gold shops in Ho Chi Minh City, according to the 1080 service.

“The Vietnamese public will continue to conserve and protect their assets by hoarding gold tael bars,” Albert Cheng, managing director for the Far East at the World Gold Council, wrote in an e-mail.

Three Devaluations

“They’ve been hit by three devaluations in the last year and no one can be certain there won’t be more,” Tim Condon, Singapore-based chief Asian economist at ING Groep NV, said by phone. “Gold buying is an alternative to U.S. dollar buying.”

Vietnam’s gold offtake last year was 73.3 metric tons, with per capita consumption of 0.8544 gram and average income of $2,900, according to the Gold Council’s Cheng, citing data from GFMS Ltd., the International Monetary Fund and the World Bank.

India, the world’s biggest gold user, took 578.5 tons, or 0.4874 gram per head, and had average income of $3,100. China’s figures were 457.8 tons, 0.3418 gram, and $6,600, Cheng wrote.

For almost the same level of income per capita, Vietnam consumed almost twice as much gold as India, Cheng wrote in the e-mail. Compared with China, Vietnam’s demand relative to income was about five times higher, he wrote.

Increased Holdings

“People will increase their gold holdings, definitely,” said Lam Minh Chanh, chief executive officer of Ho Chi Minh City-based Vang The Gioi (World Gold) Co. Ltd. “Gold prices will continue to rise in Vietnam.”

The VN Index, the local stock benchmark, has lost more than 20 percent from this year’s high on May 6, and Nguyen Duc Hai, head of research at Vietcombank Securities, said Aug. 24 there’s “no sign of a bottom.” The index rose 0.5 percent today.

The trade deficit narrowed to $900 million in August from $978 million in July, according to preliminary figures from the General Statistics Office in Hanoi. The economy expanded 6.4 percent in the second quarter, after advancing 5.8 percent during the first three months. Inflation is 8.18 percent.

Gold in dollars may reach at least $1,300 this year as investors seek a shield against financial turmoil, GFMS Chief Executive Officer Paul Walker said. “Prices are going to ratchet up,” Walker said in an interview.

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