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Home >> Daily News >> Vietnam News >> Economy >> Gold puts pressur on dong
Gold puts pressure on dong
Per dollar of income, the Vietnamese consume more gold on average than anyone else on earth: in 2009, more than twice as much as Indians, 10 times as much as Chinese and 44 times as much as Americans, according to World Gold Council data. This heavy habit is creating concerns in the corridors of power by contributing to the country’s chronic trade deficit, as most gold is imported. This in turn adds to pressure on the dong, Vietnam’s currency. The World Gold Council estimates that Vietnam’s net imports of gold were worth US$2.3billionn last year, or more than 20 percent of the country’s current account deficit. At the official exchange rate, the dong has lost almost 11 per cent of its value against the U.S.dollar since the beginning of last year. “People want to invest in gold because they believe that the dong is overvalued,” says Do Xuan Quynh, a manager at Bao Tin Minh Chau. Gold demand dropped by 37 percent in 2009, partly as a result of the global slowdown and as investors sold off holdings into a rising market. But Mr Do believes that as the economy recovers, gold consumption could grow as much as 50 percent this year. “Demand is still growing because people don’t believe in any other channel of investment,” Mr Do says. Speculative and largely unregulated margin trading in gold grew so rapidly – trading volumes fluctuated between U.S.$1billion and $1.5billionn a day late last year, as opposed to $200m-$500m a day on the dollar foreign exchange market – that the government stepped in at the end of last year and ordered gold trading floors to close. The feeding frenzy on the trading floors is symptomatic of a country where gold holds a unique emotional and economic significance. Houses are frequently priced in gold, jewelers have illuminated signs displaying buy and sell rates on their walls – bangles and chains are sold by weight, with little if any premium for the jeweler’s art – and there are an astonishing number of streetside shops in Hanoi and Ho Chi Minh City selling safes. Gold is effectively a parallel currency, says Scott Robertson, a senior economist with Dragon Capital in Ho Chi Minh. “It is a form of savings, people transact in it and it earns interest on deposit,” he says. There are no accurate surveys as to how much gold Vietnamese hold, but Mr Robertson estimates that “street gold”, sums held outside the banking system, amounts to about $30bn, or 29 per cent of gross domestic product, and more than triple the volume of “street dollars”.
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