Vietnam Is Trying To Get Tons Of Hoarded Gold Back Into Circulation

For weeks, 67-year-old Le Thi Minh Tam has been scouring Hanoi for gold to give her son at his upcoming wedding, battling long queues outside shops whose stock sells out fast.

"I'm getting worried, as I still don't have enough," Tam says with a sigh. "They don't sell gold bars anymore, only gold rings with a very limited amount for each customer."

Tam isn't alone. A global rally that sent the price of the precious metal to a record high of $4,380 an ounce last month has fueled a buying frenzy in Vietnam, where gold symbolizes luck and is often hoarded under beds as protection against economic uncertainty. The mania is proving an early test of the communist government's efforts to liberalize the market after ending a 13-year state monopoly on imports and production in October, a system that had restricted supply and inflated prices.

Supplies have been so short in Ho Chi Minh City, roughly 1,700 kilometers (1,056 miles) south of the capital Hanoi, that some determined shoppers camped overnight outside a leading store just to secure a few gold rings.

"I thought coming at 6 a.m. was early, but it was already crowded when I arrived," says Nguyen Kim Hue, a 57-year-old online food seller. "The last time I came, I couldn't buy anything because they ran out of gold."

The precious metal has long been woven into Vietnamese culture and holds a prized place in weddings, where close relatives gift it to bless newlyweds with prosperity. During the Vietnam War, it served as a safeguard for wealth when currencies faltered, and even today it's often trusted more than bank deposits.

In 2012 the government imposed a state monopoly to combat economic instability caused by people hoarding gold to hedge against inflation — making the State Bank of Vietnam the sole importer of gold and giving Saigon Jewelry Co. an exclusive license to produce gold bars. But the policy widened the gap between local and global prices and helped fuel a black market that destabilized the local currency. The new regulations undo those controls, though change is expected to be gradual: The central bank still determines how much gold can enter the country.

"We'll have to wait until mid-December to see how much gold import quota the central bank grants," says Huynh Trung Khanh, vice chairman of the Vietnam Gold Traders Association. "It'll probably be far below what the market needs to meet demand."

Vietnam's annual gold demand is about 55 tons — the highest in Southeast Asia — but the State Bank only imported about 13.5 tons last year, according to the association. The overhaul aims to narrow the gap between domestic and global prices: Locally, gold often trades at a 10%-15% premium, which the government hopes to cut to 2%-3%.

"We've been through wars and hard times, so people here have seen gold as the safest place for their money — a safe haven, something they can rely on when life gets tough," says Khanh.

Globally, gold has been among this year's best-performing major commodities, driven by demand from central banks and investors. From India to China to Turkey, shoppers keep snapping up jewelry and bullion despite soaring prices, with wedding season helping buoy demand for precious metals.

In Vietnam, prices have eased from recent highs, but "sold out" signs remain common at gold stores. Dozens of people waited for hours ahead of the opening of one of Ho Chi Minh City's most prominent gold shops last week, as staff handed out numbered tickets to maintain order. Hue brought her husband — and together they managed to buy five gold rings.

"At first the shopkeeper told me I could only buy one ring, but I persuaded her to sell me more," she says with a wide smile. "I'm so happy now."

New rules require any transaction above 20 million dong ($760) to be made by bank transfer, ending Vietnam's long tradition of cash-for-gold deals. That's proved difficult for some elderly buyers, who often need to call their children to complete online payments.

Hue began buying gold in June, when prices were around 120 million dong per tael — a local unit equivalent to about 1.2 troy ounces. Now it's around 147 million dong. "Before, I used to keep my savings in the bank, but now I feel safer holding gold," she says. "It's my way of making sure my money doesn't lose value. This is for my children's education and my retirement."

Tran Thi Yen Nhi, 20, who works at a construction materials trading company in Ho Chi Minh City, queued for three hours to buy gold for her sister's wedding. "My parents asked me to help, because it's hard for them to stand in line for so long," Nhi says.

"I've made it a habit to buy gold whenever I can save some money, just little by little," she adds. "Since I was a little girl, I saw my grandmother do the same. She bought gold whenever she saved a bit and then kept it under her bed."

The World Gold Council estimates that about 500 tons of gold are hoarded in Vietnam, much of it in locked boxes under beds. By comparison, households in India — the world's second-largest consumer of gold after China — own 34,600 tons, Morgan Stanley estimates. There's no reliable up-to-date data on private gold holdings in China.

To discourage hoarding and encourage other forms of investment, the Vietnam Association of Financial Investors has proposed the government impose a 10% tax on gold purchases, including bars and jewelry. For now, the government is considering a 0.1% tax on gold bars to provide a data trail, boost revenue and curb speculative trading and gray-market activity. A three-phase rollout of a national gold trading exchange also aims to bring gold stashed at home into circulation and further align domestic and international gold prices.

But that's little comfort for Tam, who's still struggling to buy gold for her son's nuptials. "I'm so tired and worried," she says. "The wedding is coming soon, and I still haven't been able to buy enough. In Vietnam, gold isn't just a gift. It's how we show our love."

Source: Bloomberg Europe