Gold Price Rockets to New Record

Saigon Jewelry Gold Co.’s gold prices Thursday climbed by VND160,000 (US$10.04) a tael (1.3 oounces) to VND11.00 million (US$689).

Currently, the domestic gold price was still lower than the world's.

Few trading in domestic market

Few Vietnamese consumers show their interested in gold products, especially jewelry these days for its high prices.(Photo:T.K)

Despite changes in the global gold market, there are currently few gold trading activities in the Vietnamese market. As reported by some local gold enterprises, Vietnamese gold consumers tend to sell their gold rather than purchase the precious metal.

Also, many gold producers just import enough material gold when there are consumers’ orders.

However, some people believed they can earn profits from the fluctuations in the domestic gold price. According to Asia Commercial Bank Deputy General Director Pham Van Thiet, many local speculators are inquiring about new services regarding gold product in order to cash in.

"These new types of speculation could well become the main reason for the domestic gold price to follow closely behind the global one," said Mr. Thiet.

Global gold price to top US$600

Gold price on the global market reached it highest level of over 25 years to top the US$580 an ounce mark (not including customs and processing taxes) late Thursday.

Thus, in only the first three months of 2006, the precious metal’s price has rocketed from US$517 an ounce to US$580, a 12% increase compared with 17.35% of the entire 2005.

International experts said the global gold price will rise to US$600 this year.

According to the Viet Nam Export-Import Commercial Joint stock bank (Viet Nam Eximbank), the current global crude oil price, which recently soared to US$66 a barrel, is one of the major causing the strong surge in the gold price.

As shown in a survey made by the Viet Nam Eximbank, among ten world’s leading gold analysts and investment funds trading in gold, six predicted the global gold price would reach US$580 and then stop at US$600 an ounce by late 2006. Other three analysts reckoned that the price would rally grow only after some reduction, aiming at encouraging the investment funds to focus the gold market. There is only one expert among ten believed that the price would slip to US$530-540 an ounce late March 2006.

As shown in many economic analyses, the sharp rise in crude oil price would cause an increase of raw material’s price, and then consequently push the production cost up, in turn that would put a pressure on the global economies, especially of the US, and result in inflation.

The above theory evidently reflected in the fact that more and more big central banks all over the world are planning to increase interest rate, taking a step toward tightening monetary policies to curb inflation.

The Federal Reserve System of the US (FED) has recently made its fifteen interest rate increase, in which the US dollar rate rises to 4.75% and possibly to 5.25- 5.5% in the near future. The Bank of Japan also put an end to its monetary loosening policies and gradually adjusted its interest rate. Besides, the European Central Bank has increased its interest rate at least two times in 2005.

Meanwhile, speculators have seized the opportunity to make profits, causing the highest increase of the global gold price and a slum in material gold sale in many major markets, especially of Japan and the EU.

However, other reasons for the gold price rise could be the political instability in some rejoins around the world and the weakening of the US dollar, according to the experts.

As shown in a technical analysis, the global gold price is likely to move to US$590 or even US$600 an ounce, now that the US$580 an ounce level has been surpassed.

On the other hand, there’s a possibility, experts said, international markets may also witness a decline in the gold price in since speculators might start to sell their gold hoarding, which was formerly purchased at a very low price of US$560-570 an ounce to make profits.

What if the gold price keep rising?

Sharp climbs in the global gold price do not bring about any major direct effects to the Vietnamese consumer. "But, we can not avoid some indirect influences, even though our economy is no longer based on gold trading," said a joint stock bank’s director.

According to many local banks, the rising gold price has hurt Vietnamese consumers who took out loans in gold, a traditional form of lending in the country for buying property. Besides, more payments in the real estates are currently made by the Vietnamese currency VND, as the soaring price of gold, commonly used in Viet Nam to base property value, has frozen the realty market.

If estates are valued in gold, there’s a hefty since the beginning of the year increase of 11% in house price.

Some local real estate agencies reported that there is a rising number of payment made in VND. However, due to the high price of gold, home sellers still hesitate to use the VND for the transactions.

Source: SGGP, TT – Complied by Trong Khuong

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