SBV will buy bullion gold to increase foreign currency reserves

VietNamNet Bridge – The State Bank of Vietnam (SBV) is going to buy bullion gold to increase the foreign currency reserves as it foresees the downward trend in the gold price in the next six months or one year.

Director of the Foreign Exchange Department of SBV Nguyen Quang Huy said the central bank is considering all possible solutions, including the purchase of bullion gold, to increase the foreign currency reserves.

“It is still not clear about the time to purchase, but we have got ready,” Huy said.

Time to buy gold

SBT, gold bullion, foreign currency reserves

According to Huy, there are many reasons that prompt the State Bank to buy gold. The global economy has recovered better than expected.

The US FED is likely to tighten the monetary policies. If so, gold, an investment asset valuated in the US dollar, would bear negative influences. With the warming up of the other markets, it is foreseeable that the gold prices would decrease in six months or one year.

Just some months ago, analysts all forecast that the gold price would continue the upward trend. However, things have got different. No longer do financial analysts say the gold price would increase.

In Vietnam, according to Huy, gold has become less “glittered” because of the signs of the national economy recovery, which would make other investment channels (securities, real estate…) more attractive than gold.

This explains why the demand has decreased in recent gold bids. At the 70th bid on November 15, only 13 out of the 19 enterprises and banks won the bid to buy 14,600 taels of gold, which meant that 400 taels of gold has been sold.

In the domestic market, the gold price has been decreasing, now hovering around VND36,460-36,520 million per tael. The gap between the domestic and the international prices has been narrowed to VND3.7 million per tael, down by VND200,000 from last week.

When answering the inquiries before the National Assembly, Governor of the State Bank Nguyen Van Binh said the scale of the bullion gold and the demand have decreased sharply. Previously, banks and enterprises trade 8,500 taels of gold per day, but the figure has dropped to 2,500 taels per day.

What will SBV do with the gold to buy?

Experts have said that they advocate the central bank’s decision to buy gold, if the aim of the purchase is to increase the foreign currency reserves, not to intervene in the domestic market.

If the State Bank buys gold as a trader, two scenarios would happen. First, the gold price would decrease sharply after the purchase. Second, this would widen the gap between the domestic and the international prices.

However, Huy has affirmed that the central bank has prepared well enough to be sure that the deal would not bring loss.

In fact, the gold price has been stable in the domestic market over the last two weeks, at VND36.7 million per tael. However, it is still much higher than the world’s price.

Analysts believe that the State Bank would not be able to buy gold from people, but would buy from gold companies and commercial banks. In this case, the purpose of mobilizing the public’s resources remains unattainable.

K. Chi

SBT, gold bullion, foreign currency reserves