Vietnam central bank to auction 16,800 taels of gold after 11-year hiatus

The State Bank of Vietnam (SBV), the country’s central bank, will auction 16,800 taels of SJC-branded gold bars next week for the first time in 11 years to help bring prices down in a country where the metal is highly favored as a safe haven asset.

The auction will take place on Monday morning at the SBV’s State Foreign Exchange Reserve Management Department, the SBV said in a statement.

The reference price will be VND81.8 million ($3,215) a tael. A tael is equivalent to 37.50 grams.

At the close on Friday, Saigon Gems and Gold Company (SJC) quoted the metal at VND81.8-83.8 million ($3,293) a tael.

There are 15 companies and banks eligible to participate in the auction.

In 2013, the SBV held 76 gold auctions, selling 1,819,900 taels or 69.9 tons, out of 1,932,000 taels on offer. At that time, domestic prices were VND4.2 million higher than global ones.

Since the start of this year, large numbers of locals have rushed to buy gold amidst a global price rally and high inflation across the world. Scant supply and high demand have made domestic prices VND12-13 million ($511) a tael higher than world prices, but still lower than a VND18 million gap recorded in the past year.

The SBV holds a monopoly on gold imports and production of SJC-branded bullion.

Several cases of gold smuggling across the border with Cambodia have been busted with large quantities. Gold smuggling is believed to contribute U.S. dollar hoarding, leading to a swift appreciation of the greenback against the local currency on the black market.

Nguyen Minh Tuan, CEO of AFA Capital, who participated in many gold auctions held by the SBV back in 2013 while working for TPBank, said on a Youtube-streamed financial channel that the current context is different from in 2013. Pressures on the USD/VND rate are now higher, and the U.S. Dollar Index (DXY) is trending up.

Tuan warned that gold auctions should be carefully considered because they will require a large amount of USD to import gold, thus causing a negative impact on the forex rate and interest rates.

He cautioned that the auctions will help increase the supply but are unlikely to help narrow the price disparity.