UPDATE 3-Vietnam suspends gold imports as trade gap widens
Mon Jun 23, 2008 1:37pm IST
By Lewa Pardomuan
SINGAPORE, June 23 (Reuters) - Vietnam has temporarily suspended gold imports as Hanoi struggles with a trade deficit that has tripled this year, but the move is unlikely to lift local prices because of plentiful supplies and weak demand.
The move, in place for the past two weeks, is an effort by Asia's second-largest gold investor to ease the economic burden as Hanoi steps up efforts to rein in inflation by tightening credit, said Hyunh Trung Khanh, a consultant for the Vietnam chapter of the World Gold Council.
"The government is very concerned. They have to reduce the trade balance deficit. Gold is one of the main imports," he said.
But traders added only a prolonged suspension could cut domestic supplies and trigger a scramble for safe-haven assets. Fears that the dong could fall in value are making dollar holders reluctant to let go of their foreign exchange.
"Of course this depends on how long the suspension lasts," said Adrian Koh, an analyst at Philip Futures in Singapore.
Traditionally, Vietnamese use gold for savings, jewellery and real estate transactions but when inflation is high many choose gold or the U.S. dollar to hedge against inflation.
Khanh said Vietnam had imported 60 tonnes of gold valued at $1.8 billion in the January-May period, up 100 percent from the same year-ago period.
The central bank have given quotas to 40 banks and trading houses to import 73 tonnes of gold in 2008, up slightly from about 70 tonnes in 2007.
"They have required companies and banks which have not imported yet to remit back their remaining quotas to the central bank. Eleven tonnes have not been imported yet," said Khanh.
Vietnam imported 77.7 tonnes of gold -- both for jewellery and for investment in 2007 -- well below purchases by main consumer India, which imported more than 700 tonnes last year.
For a graphic on Vietnam's gold investment demand, click on: here
OVERHEATING
Following a year of overheating and high credit growth, 2008 has been strained for Vietnam, where macroeconomic stability was taken for granted as it boasted one of the world's highest growth rates, averaging 7.5 percent a year since 2000.
Speculation that the dong would fall has weighed on the currency.
Gold powered to a record of $1,030.80 an ounce on March 17on record-high crude oil, which raised fears of inflation and expectations of more rate cuts in the United States, making the metal more attractive as an alternative investment.
Gold <XAU=> has since corrected and stood around $905.85 on Monday, and barely reacted to the news on Vietnam.
"We have imported quite a lot. So there's still quite a lot of gold inside the country, and the demand in June is slowing down. The difference between the local and international gold price is not very high," he said without elaborating.
The price of gold was quoted by local dealers at around $873 an ounce, lower than international prices.
"Re-export of gold is not restricted but we have not seen any selling on the international market so far because they can still make a good, handsome profit in the local market," said an official at the Vietnam Gold Traders Association. (Additional reporting by Nguyen Nhat Lam in HANOI; Editing by Sambit Mohanty)
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