HANOI (Commodity Online): Fearing a major collapse, the Vietnam government has ordered the closure of all Gold trading floors by March end.

The business, which turns over $1 billion a day, will come to a stop in March as the government fears that it will  spin out of control.

According to a government press note, both the owners of the gold-trading floors and traders are doing their transactions on a fragile foundation that lacks legal, economic and technical frameworks and knowledge.

The order also bans using overseas accounts, but does not impact jewellery or retail gold sales.

The government said it was particularly concerned that some investors had been drawn into overleveraging their positions by low interest rates and the ever-increasing price of gold, which has risen from $660/oz when the first trading floor was started in 2007 to almost $1,100/oz now.

The government said in some cases, investors had only been required to put up 7 per cent of the value of their portfolio.

According to a Financial Times report, the regulation will affect around 20 gold trading floors, but it is unclear if the government is intending to rewrite the regulations and allow the floors to reopen or if the move is long-term.

The trade has become a lucrative source of income for many of the banks and trading houses which have opened the exchanges, and the ban could hit profits. But analysts say it could free up liquidity that might flow back into the stock markets.

Gold has a special place in Vietnamese investment portfolios. It often plays a key role in hedging property transactions, and historically provided a buffer against political uncertainty.

Vietnam is one of the world’s largest Gold consumers. The Vietnamese buy a similar amount of gold per head as the Germans, who have a GDP per capita more than 40 times greater.

But the appetite for gold has put significant pressure on the dong and was a key factor in forcing the government to devalue the currency by more than 5 per cent at the end of November. But the currency is still trading below the government’s approved trading band on the black market.

Gold imports were a substantial contributor to a ballooning trade deficit, which hit some $12.2 billion in 2009, contributing to fears of re-emerging inflation.

Post your comment  (0)

Connect:

Post to Twitter

Post to Facebook