Vietnam issued a decree this week to put an end to a 13-year state monopoly on gold trading, thereby allowing private entities to produce gold bars in the country by obtaining a license.
It will also enable the State Bank of Vietnam to issue licenses for the importation of raw gold and permits for overseas bars trading. Imported raw gold must be of a purity level exceeding 99.5 per cent, according to a statement from the government obtained by Bloomberg.
Furthermore, it puts an end to the Saigon Jewelry Company’s long-standing control as the state’s sole designated producer of gold bullion under the old system. This previous framework resulted in Vietnam’s gold prices exceeding other nations by an average of 25 per cent in previous years.
“This marks a pivotal shift,” said Pham Luu Hung, chief economist at Vietnam’s SSI Securities Corp, in a note. He explained that it was a shift from a state-controlled model in place since 2012 to a regulated and competitive market with greater transparency and efficiency.
The price of gold in the Southeast Asian nation just reached a historic high on the back of the news after ascending by 52 per cent since Jan. 1. A tael, or 1.2 ounces in Vietnam, is currently going for a much higher dollar than the global average at US$4,866.47. The record price represents a 30 per cent year-over-year ascension.
“This ends the long-running state monopoly over the sector, which has at times led to a disconnect between local and global gold prices,” commented Bank of Montreal (TSE: BMO) (NYSE: BMO) Capital Markets. “The change should ultimately enable gold imports to move in closer tandem with domestic demand, hence we see this as a positive development for the global gold market.”
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Development reverberates in state mining industry
Although Vietnam has a modest gold mining industry, local operators may see an increased level on intrigue in their respective operations as a result of the major development. The new decree will have an indirect impact on the sector through the change in market dynamics.
With more entities permitted to produce gold bars, demand for domestic raw gold could potentially rise significantly. The nation has approximately 500 gold mining sites, the vast majority of which are small-scale/artisanal.
Like China, gold has immense cultural significance in Vietnam as a symbol of prosperity and luck. Many Vietnamese citizens prefer owning physical gold over stocks or other assets.
Vietnam’s gold reserves are estimated to be worth over US$850 million. The nation is Southeast Asia’s top gold consumer and seventh throughout the world.
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