Rushing to buy gold before tax hikes

Tuesday, May 20, 2008
Domestic gold prices will be higher than the world’s price and gold smuggling becoming more serious are two things that may occur after the gold import tax is raised to 1%.

As stipulated by the Government, the import gold tax will be 1% instead of 0.5% as of May 20, 2008. Fearing that the prices would skyrocket as the result of the tax hike, people are rushing to buy gold before the decision on tax increases comes into effect.

However, many people complained that they had not much time to arrange money to buy gold. The decision on raising the tax was signed on May 15, but the information only arrived on May 17.

The gold price soared by VND400,000/tael in the last two days of the last week. The price stayed at VND17.66-17.74mil/tael. SJC system said that the sales unexpectedly reached 4,000 tales late last week, or double ordinary days. The price levels prove to be high enough for speculators, who bought gold before at lower prices, to sell gold at a profit.

Analysts all said that the domestic gold price will be higher than the world’s price once the import tax is raised. However, some gold traders said that the import tax increase proves to be unavoidable in the context of a high trade deficit. They said that the price increases after the tax increase will not be too large, while the biggest concern is that the State Bank may stop granting gold import quotas.

The gold demand is now very great as people want to buy gold to hoard in the context of high inflation. Besides, many people want to buy gold as investment deals, when other investment channels prove to be gloomy. The end of gold imports, if it occurs, will cause the serious imbalance between supply and demand, which will make the domestic prices skyrocket.

Analysts have also pointed out that gold smuggling, which was a problem many years ago, will reoccur. The concern originates from the fact that Vietnam’s gold consumption level is increasing, with 50 tonnes of gold imported in the first five months of 2008.

Nguyen Thi Cuc, Deputy General Director of PNJ, said that though banks have been trying to raise deposit interest rates, the mobilized capital has not seen considerable improvement. It is because many people decide not to make deposits, but save money in gold.

Dinh Nho Bang, Secretary General of the Vietnam Gold Association, though not giving exact figures, affirmed that the volume of gold kept by people is quite large.

Bang said that it is the right of people to choose where they inject money. In other countries, when the dollar value decreases, the countries’ central banks have to restructure the foreign currency reserves by raising the gold volume. The US, for example, has gold accounting for 65% of its national reserve. (VnMedia, DTCK)