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In reality, some banks have yet to close their gold positions and face deficient volumes of the precious metal amounting to several dozen tonnes. If the State Bank (SBV) pumped out low-priced gold into the market through bidding sessions these banks might make use of the opportunity to increase buying instead of selling the gold they bought at low prices for market stabilisation purposes. This means the SBV would unintentionally support the group-based interests whereas people were not the beneficiaries, according to a SBV source.
Senior economist Nguyen Tri Hieu said the SBV high bid price was understandable since the SBV’s top target when partaking in the gold market was to ensure the national foreign currency reserves and not incur losses to the state coffers.
Hieu said if the SBV offered low bid prices and sold gold at a price close to world market prices it was not certain the banks or firms that bought the gold would resell it at low prices or hold out for profits.
“Possibly, if the SBV sold gold at low prices, the bid winners would maintain high prices to cash in on big price differences or banks bough the bullions to close their gold position. In these cases, the beneficiaries would not be local people,” said Hieu.
“The bid price is set founded on a rational formula factoring on market actual demand and supply. The SBV strives to stabilise gold bullion market through hiking supply, but not through applying price subsidy scheme to pull the price down. The gold price is set by the market. Big price difference in the market due to scarce supply will alleviate when the SBV increases supply,” according to the SBV source.
When the SBV confirmed it would not control retail gold prices, scores of economists insisted the central bank introduce a mechanism to control gold retail prices for market stabilisation.
This was to avoid firms going into cahoots to keep gold bullion price at high levels.
“To ensure efficiency of gold bullion bids, in parallel to setting suitable buying and selling prices the SBV should come up with measures to stop firms pushing up the price. The SBV should also enact a mechanism on gold retail prices for the bullions from successful bidding,” Nguyen Minh Phong, an economist, suggested.