Gold trading floor out of control

Tuesday, April 29, 2008
In Viet Nam, the model of gold trading floor is showing the efficiency of capital mobilisation from businesses. However, no legal documents on controlling the gold trading floor’s operations has been created so far.

After the success of the ACB gold trading floor, the Viet Nam Gold Trading Association (VGTA) and its member businesses are accelerating the establishment of more trading floors.

At least two more new floors of its kinds will open in Hanoi in June.

Judging from the rapid development of the new form of business, VGAT Vice President Dinh Nho Bang said it is essential to create operational regulations to make gold trading floors run effectively. The VGTA has asked the Sate Bank of Viet Nam (SBV) to create a legal framework for gold trading floors as well as to-be-established gold trading centres in the near future in order to protect investors’ interests.

Under Decree No 160 on the SBV’s management, the SBV is entitled to manage gold export-import activities without controlling the gold market in general. Hence, it can be said that State regulations on the establishment and control of gold trading floors’ activities lack transparency, including the opening of gold trading accounts.

According to Luu Quang Dien, a member from the Executive Board and managing director of the Hanoi SJC Company, gold trading companies should joins hands with banks to maintain the smooth operations of the trading floors. In reality, when investors want to withdraw a large volume of gold, banks fail to meet immediate demand as they have to spend a certain period of time sourcing the gold.

To make gold trading floor operation move, apart from building strict legal regulations, it is important to develop a contingent of capable transaction staff.

Currently, gold prices are updated regularly through the media. Those who have a thorough grasp of the rules, will earn a high profit otherwise investors can face a risk of losing their investments.

Luu Quang Dien, Manager of SJC Hanoi, said that a gold trading floor would have great potential because physical gold trading is not very safe and requires a great amount of gold. Meanwhile, the virtual business of a gold trading floor offers convenience, safety and wide trading range for investors. Therefore, gold trading floors are very popular abroad.

Both investors and economists said gold trading in this way is even simpler than stock trading because the former requires a single code and investors have to consider and make their own decisions.

However, the floor has its own complexity. In the stock market, the increases occur between floor and ceiling prices within the domestic market but gold prices fluctuate unpredictably according to world prices. The transaction order is effective only in a day.

This business could bring huge profits but also cause great losses.

Mr Dien added that there has been a variance in terms of the trading in Hanoi and HCM City. The Hanoi gold trading market is not very large but has potential investors, most of whom are located in Hanoi, Haiphong, Quang Ninh and Lang Son. He predicted the great trading amount in the future will be concentrated in the northern region, not in the southern region.

In the context of unstable gold prices, gold trading floors will help investors reduce their risks and gold price gaps by responding to every change on the market.

In developed countries, gold trading via accounts makes up more than 60 percent of the total (the rest is physical gold trading.) Most of their enterprises are involved in gold trading because this helps them mobilize capital effectively.

In order to join these floors, investors only need to have accounts in banks with initial fixed capital. The more deposit, the more trading chances they have.

The minimum capital for each investor will be stipulated by floor. At ACB floor, it is 50 taels. In the coming period, the corresponding figures in new floors are expected to be reduced by 10 taels to attract more investors.

Mr Dien said Hanoi currently has no standard gold trading floor. In June, VATA will launch a new floor at Rubby Plaza in Le Ngoc Han street. This floor will open during the peak hours of the world gold market (until 9pm Viet Nam time). (VOV)