Vietnam Bans Gold Imports
Suspension of Vietnamese gold imports could trigger a scramble for safe-haven hard assets...
THE GOVERNMENT in Hanoi has chosen a novel method to try and contain Vietnam's trade deficit – which has already tripled this year, reports Commodity Online.
It's temporarily banned new Gold imports.
With the local stock and real estate markets falling fast – taking the Vietnamese currency, the Dong, with them – price inflation for consumers has now reached 25% year on year.
The second largest market for gold exports in the world, Vietnam has already imported 60 tonnes of gold valued at $1.8 billion so far in 2008, an increase of 100% over the same period last year.
And after doubling import duties on Gold last month to 1%, but finding little slowdown in response, the government's new suspension of gold imports will cut domestic supplies and may trigger a scramble for safe-haven assets.
Fears that the Dong could fall further in value are making US-Dollar holders reluctant to let go of their foreign exchange. But with fears about the value of the Dollar itself still strong globally, "we've seen high Gold demand as Vietnamese investors have taken a rational decision that this is a hedge against higher inflation and a weak Dollar," said John Shrimpton at Dragon Capital in Ho Chi Minh City to the Financial Times today.
Traditionally, and like private individuals across south-east Asia, Vietnamese citizens have used gold as a way of storing wealth, holding the precious metal instead of more formal bank savings accounts.
Also holding jewelry as well as bullion, they often fund real-estate transactions in Gold – but when inflation is high, as now, many choose gold or the US Dollar to hedge against rising living expenses.
Vietnam imported 77.7 tonnes of gold for jewelry and investments in 2007. On the other hand, the world's No.1 gold consumer, India, imported more than 700 tonnes last year.
Following a year of overheating and high credit growth, 2008 has been strained for Vietnam, where macroeconomic stability was taken for granted as it boasted one of the world's highest growth rates, averaging 7.5% a year since 2000.
Now the central bank have given quotas to 40 banks and trading houses, allowing them to import 73 tonnes of gold in 2008, up slightly from about 70 tonnes permitted in 2007.