When Trading Floors Lack Gold
A very interesting article from Vietnam on the disconnect between paper and physical precious metals prices, which I have been reporting on for many months now.
When gold trading floors lack gold17:09' 22/09/2008 (GMT+7)
VietNamNet Bridge – The happenings in the gold market in recent days have put gold trading floors in a bind. While the gold prices on trading floors have been decreasing, the prices on the in-kind gold market have been staying firm. Trading floors do not have big volumes of gold to pay out, irking clients.
Gold trading floors lack gold
On September 15, when the in-kind gold price was quoted at VND16.95-17.05mil/tael, the gold price traded on Saigon Gold Trading Floor was just VND16.6mil/tael.
This was not the first time such a big gap (VND300,000/tael) between the prices of the two markets existed. The big gap prompted investors to withdraw gold from trading floors to sell on the in-kind market to get margin profit. As a result, several gold trading floors decided to lower the limit of gold investors can withdraw per day.
Under the operation regulations of many gold trading floors, set up by the floors’ operators, investors can withdraw gold whenever they want.
At the SJC Hanoi gold trading floor, run by Ha Thanh Securities Company and VP Bank, an institutional investor can draw out 50 taels of gold per day, while an individual investor can draw out 20 taels per day. Those investors who want to draw out more than the stipulated volumes have to register with VP Bank. The bank then considers the situation to make a decision about whether to satisfy the investors’ demands.
Currently, some trading floors do not set fixed volumes of gold investors can withdraw per day. They are setting different limits on different days after considering the market situation. This really disadvantages investors because they cannot take initiative in making investments.
Most recently, ACB Gold Trading Floor released a notice on reducing the limit of gold investors can withdraw per day to one tael instead of three taels as previously.
Currently, most gold trading floors cooperate with the Saigon Jewellery Company (SJC), a big supplier with SJC trademark gold, in supplying in-kind gold to serve clients’ demands for withdrawing gold. However, as SJC cooperates with many gold trading floors, it sometimes cannot provide enough gold for all the floors.
Low liquidity, why?
Explaining the big gap between the prices on the gold trading floors and the in-kind gold market, Huynh Trung Khanh, Deputy Chairman of the Vietnam Gold Trade Council, said that the prices on the trading floors have been closely following the world’s prices, while the prices on the in-kind gold market have been changing more slowly.
Moreover, Khanh said the supply of gold has been limited (the import quota has run out and enterprises cannot import more gold), while the demand is still high; therefore, the in-kind gold price has remained high and only decreased very slightly.
“We cannot purchase gold at high prices in the in-kind market to give to investors. If we do this, we would incur the loss of several hundred thousand VND per tael,” the director of a gold trading floor revealed.
Experts have urged management agencies to set a proper legal framework on the operation of trading floors in order to ensure benefits for investors.