In the midst of the global financial downturn, the government of Vietnam has ordered all public gold trading floors to be shutdown by March 31 because they rest on a "fragile foundation."
Over the last several months, gold has been trading at record highs but has contracted a few per cent to just under $1,100USD. In a country where many of its citizen view gold as a safe haven against the nation’s financial uncertainty, Vietnam will end all of its public gold trading floors by March 31, according to the Financial Times.
The government ordered the $1 billion per day business to a halt because it was spiralling out of control but it is unclear if the government is making it a temporary move or if it’s permanent. The legislation will affect around 20 gold trading floors.
Gold trading has been a high source of income for many banks and trade houses but the ban could hit profits in a large way as many, notes the Market Oracle, but experts believe the ban could free up liquidity into the stock market again.
In an issued statement by the government they said, “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.” However, it will not affect jewellery or retail gold sales but the decision will ban Vietnamese from holding overseas accounts.
AFP reports that the gold investors have been overleveraging their positions because of low interest rates and the high prices of gold. In 2007, when the first trading floor began in Vietnam, gold traded at $660USD and in December it hit $1,220USD.
Bui Kien Thanh, an investment analyst, said, “It's very risky for traders involved in such highly leveraged operations.”
The increase in the price of gold forced the Vietnamese central bank of devaluing their Dong currency by 5 per cent in November and raised interest rates by one per cent. According to the World Bank, Vietnam was the largest importer of gold in 2008 when inflation hit 23 per cent with a trade deficit of $12.2 billion, which is actually down 32 per cent.