HANOI: Vietnam, where many people see gold as a safe haven against economic uncertainty, has ordered public gold-trading floors shut by March 31 because they rest on a “fragile foundation”. The order affects about 20 gold-trading houses operated by banks and other firms, which have been running for more than two years, the state-run Vietnam News reported. Retailing of gold jewellery will still be allowed, it said.
The gold-trading floors have offered heavily-leveraged trading in which investors pay a security deposit of only seven per cent of the net asset value of their trades while banks back the rest, the report said. “It’s very risky for traders involved in such highly leveraged operations,” a Hanoi-based investment analyst, Bui Kien Thanh, told Dow Jones Newswires. The government will need to re-organise the gold-trading floors as part of efforts to stabilise domestic financial and money markets, Thanh said.
A government statement said transactions at the gold-trading firms total up to thousands of billions of dong a day (hundreds of millions of dollars) but occur “on a fragile foundation that lacks legal, economic and technical frameworks and knowledge.”
In an early-December report the World Bank said Vietnam experienced a severe shortage of foreign exchange between May and July, and again in November. “Uncertainty regarding the level of international reserves also encouraged a precautionary demand for gold and dollars,” putting significant depreciation pressures on the exchange rate, it said. After burning through its official dollar reserves, Vietnam in November devalued the dong.