More unknowns in the gold market

After the banks completed the settlement of the status on June 30, transactions on the gold market were not very active. Direct business contacts or at the management level all said that it was mainly small-scale purchases by residents...



It is assumed that some gold trading enterprises also have to liquidate their gold positions.

However, the amount of goods offered by the State Bank in the "post-June 30" sessions was still almost completely cleared. Where else is the demand coming from besides the population, or where is the gold going?

Businesses also… close?

About 47 tons of gold have been supplied by the State Bank. However, according to VnEconomy's research, it is estimated that only about a dozen tons have actually been sold to the market, the rest is mostly used to settle different statuses for different subjects.

With a market with an estimated demand of around 100 tons per year, the above amount of goods is still small compared to the supply restraint of the past two years. Notably, after the demand for settlement by commercial banks has been processed, there is still an unknown in the demand for "settlement" by businesses.

In early July, the State Bank requested commercial banks to temporarily suspend gold custody services. There was a lot of information in the market reflecting that some gold trading enterprises jumped in to replace them. And before that, they also organized gold mobilization similar to the business of commercial banks.

Specifically, businesses mobilize gold according to terms, corresponding to interest rates from 1.2%/year to nearly 2%/year. Along with the amount of gold kept, these sources have kept a source of capital in gold in the past; their scale is also currently a mystery.

The problem is, what do businesses mobilize gold for? Of course, they must use it to generate profits. There are different ways of using it, including the need to collect it to pay depositors. In other words, the assumption is that some gold businesses themselves must also liquidate their gold status, especially when the State Bank has recently directed to inspect the activities of the contacts, as well as review the gold custody service.

Is there leverage from credit?

Another unknown factor affecting demand in the gold market in the past and present is credit leverage.

In theory and by law, commercial banks are not allowed to lend for gold investment. However, in reality, this may happen, so this unknown factor is “0” or significant, only known to insiders.

In their operations, gold trading enterprises have the right to borrow capital, because they have different purposes for using capital. The problem is whether the borrowed capital is diverted to gold investment or used to participate in gold bidding, through legal transformation techniques?

It is known that recently, credit leverage for gold investment has also been a focus of inspection and supervision agencies. By tightening this step, the gold market will have less virtual impact, or limit the ability to collect goods of those who intend to "use external forces".

Along with completing the settlement of status at commercial banks, if the above two unknowns at gold trading enterprises are tightly handled, the demand in the market will then be purer in terms of real demand of the population.

How much is left to bid?

There is no specific number for this question. There is only one assertion: if the market still lacks supply, the State Bank must still create supply. Because, at present, this agency has a monopoly on importing and producing gold bars.

In a previous interview with the press, a senior leader of the State Bank expressed his opinion: at each point in time, stabilizing prices and narrowing the gap with world prices is not difficult, just releasing enough goods to suppress demand; but it will be very difficult to stabilize the market in the long term, limiting its disruptions to other balancing requirements.

As of now, the world gold price has been increasing strongly in the first days of the week, and the domestic price has followed suit. If the gold price enters a real uptrend, the people's "love" for gold will easily be amplified when the VND mobilization interest rate is less attractive, foreign currency speculation is limited due to the commitment to keep the exchange rate stable... Accordingly, capital will be poured into gold again, the liquidity of the system and interest rates may increase, which is probably a concern for the State Bank.

As above, the State Bank is currently the only source of gold bar supply. In the rising wave that is forming, if the supply is restrained, it will further increase the price tension and amplify the market sentiment. Therefore, after a break last week, the State Bank has opened a second auction this week to create supply tomorrow (July 24).

One notable adjustment in tomorrow’s auction is that the maximum amount each member is allowed to bid has been reduced to 3,000 taels. Previously, the maximum was also reduced from 10,000 to 5,000 taels after June 30. This adjustment means limiting each member’s ability to collect.

And if the market shows signs of speculation, in addition to further lowering the maximum purchase volume, there is still another valve to narrow the gold status of commercial banks (currently 2% of equity capital).

According to VnEconomy - TH