More unknowns in the gold market.

After banks completed settling their positions on June 30th, trading on the gold market was not very active. Both direct traders and managers reported that the majority of activity remained small-scale purchases by individuals…



The hypothesis is that some gold trading businesses themselves will also have to settle their gold positions.

However, the amount of gold offered by the State Bank of Vietnam in the sessions "after June 30" was almost completely bought up. Where else could the demand be coming from besides the general public, or is the gold simply being absorbed somewhere else?

Are businesses also settling accounts?

Approximately 47 tons of gold were released by the State Bank of Vietnam. However, according to VnEconomy's investigation, it is estimated that only about a dozen tons were actually sold on the market, with the majority being used to settle various outstanding debts with different parties.

With a market estimated to demand around 100 tons per year, the current supply is still small compared to the supply constraints of the past two years. Notably, even after the settlement demand from commercial banks has been resolved, there remains an unknown factor regarding the settlement demand from businesses.

In early July, the State Bank of Vietnam instructed commercial banks to temporarily suspend gold safekeeping services. Market reports indicated that several gold trading companies had stepped in to replace these services. Prior to this, they had also been organizing gold mobilization activities similar to those of commercial banks.

Specifically, these businesses mobilized gold deposits with various maturities, corresponding to interest rates ranging from 1.2% per year to nearly 2% per year. Along with the gold held in custody, these entities have maintained a gold-denominated capital base over the past period; the scale of this base remains unknown.

The question is, what do businesses use the gold for? Of course, they must use it to generate profit. There are different ways to use it, including the need to collect it back to repay depositors. In other words, the hypothesis is that some gold trading businesses themselves must settle their gold positions, especially since the State Bank of Vietnam recently directed an inspection of the operations of gold depositors and a review of gold safekeeping services.

Is there credit leverage?

Another unknown factor affecting demand in the gold market recently and currently is credit leverage.

In theory and according to legal regulations, commercial banks are not allowed to lend for gold investment. However, in practice, this may arise, so whether this factor is zero or significant is something only those involved know.

In their operations, gold trading businesses are perfectly entitled to borrow capital, as there are various purposes for which the funds can be used. The question is whether the borrowed capital is diverted to gold investment or used to participate in gold auctions, through techniques to legitimize the process?

It is known that recently, credit used to leverage gold investment has also been a target of inspection and supervision agencies. Tightening control over this aspect will reduce the artificial impact on the gold market and limit the accumulation of gold by those intending to "use external forces."

Along with resolving the settlement of outstanding positions at commercial banks, if the two aforementioned variables at gold trading businesses are strictly controlled, the demand in the market will then be more aligned with the actual needs of the population.

How many more can be bid on?

There are no specific figures to answer this question. Only one thing is certain: as long as the market remains undersupplied, the State Bank of Vietnam will continue to create supply. This is because the central bank currently holds a monopoly on the import and production of gold bars.

In a previous interview with the press, a senior leader of the State Bank of Vietnam stated that stabilizing prices and narrowing the gap with world prices is not difficult at any given time, simply by releasing enough supply to suppress demand; however, it will be very difficult to stabilize the market in the long term and limit its disruptions to other balancing requirements.

At this time, world gold prices have been continuously rising sharply in the early days of the week, and domestic prices have followed suit. If gold prices enter a real upward trend, the public's "liking" for gold could be further amplified as VND deposit interest rates become less attractive, and foreign currency speculation becomes more limited due to commitments to maintain exchange rate stability… Consequently, more capital will flow into gold, and increased liquidity in the system and interest rates are likely concerns for the State Bank of Vietnam.

As mentioned above, the State Bank of Vietnam is currently the sole source of gold bullion supply. In the developing upward trend, restricting supply would further exacerbate price tensions and amplify market sentiment. Therefore, after pausing last week, the State Bank of Vietnam has opened a second auction this week to create supply tomorrow (July 24th).

A notable adjustment in tomorrow's bidding session is that the maximum volume each member is allowed to bid has been reduced to 3,000 taels. Previously, the maximum had also been narrowed from 10,000 to 5,000 taels after June 30th. This adjustment means limiting each member's ability to accumulate gold.

And if the market shows signs of speculation, in addition to further lowering the maximum order volume, there is still another option: reducing the gold holdings of commercial banks (currently limited to 2% of their own capital).

According to VnEconomy - TH