HO CHI MINH CITY (Reuters) - Business is brisk at the Saigon Gold Exchange in a grimy neighborhood of Ho Chi Minh City as Vietnamese investors bet on gold amid a turbulent stock market, rising inflation and currency concerns.
While historically Vietnamese have invested in physical gold, buying up gold bars and even buying houses with gold, they are now looking to gold futures as a cheaper way of investing in a precious metal seen as a safe bet in uncertain times.
Professional trader Truong, who asked to be identified by only one name because he wanted to keep a low profile, buys and sells about $200,000 worth of gold futures a day at the exchange, a small room where customers crowd around a single 14-inch flat screen which displays buy and sell orders and international prices for gold, crude oil and silver.
“Physical gold investment is highly risky these days because it requires a big investment, but more and more investors are switching to gold futures trading from the stock market,” he explained.
“Gold futures provide more liquidity than stocks and are more attractive than physical gold because you only need to pay 7 percent deposits, lessening the need for capital,” he added.
The exchange which is run by Asia Commercial Bank is the only gold exchange in the Communist-run Southeast Asian country. Opened in May 2007, its daily transactions average about 90,000 to 100,000 taels, worth about $100 million.
While gold jewellery purchases in Vietnam have fallen 30 percent in the past year, purchases have risen for gold bars, or taels, which are stored away as the best protection during times of economic uncertainty.
And there is much of that going on at the moment in Vietnam. In December, inflation reached double-digits of 12.6 percent, far higher than other economies in Southeast Asia. The stock market is weakening and the dong will likely appreciate this year due to a soft U.S. dollar.
“For poor workers, gold is still the best protection against the declining value of the currencies,” said construction contractor Nguyen Van Thang, a gold buyer. “My workers for the first time even asked to be paid in the gold equivalent.”
In global markets, speculators and investors bought the metal as a hedge against the dollar’s slide and record crude oil prices.
Investors in some countries are divesting themselves of their gold investments as gold hit record highs earlier this month, but the sentiment is far more ambiguous in Vietnam where some forecasters predict $1,000 for an ounce of gold in 2008.
More investment in gold and property is cited by traders as among the reasons for the decline of the Ho Chi Minh Stock Exchange, which for the past two years has been among the fastest-growing in Asia.
It has fallen 12 percent so far in 2008 after gaining 23 percent in all of 2007.
In mid-January, when gold prices worldwide were hitting highs, Saigon Jewellery Corp, a gold trading house, said it sold about 15,000 taels of physical gold per day, or about $15 million worth of gold. It had four times as many buyers than sellers.
Compared with India and Thailand, Vietnam’s is a small market. Vietnamese consumers bought only about 86 tonnes of gold in 2006, the latest year for which figures were available.
But much of those gold purchases were for bullion investments, making Vietnam the second largest purchaser of gold for investments, rather than jewellery, in Asia.
With rising incomes of a new middle class created by rapid economic expansion, gold consumption is expected to grow about 7 percent to 8 percent a year, gold traders said.
About 95 percent of Vietnam’s gold is imported from Hong Kong, Singapore, Japan and Switzerland.
“Gold bar investment is more popular (than jewellery) as some people don’t seem to trust the bank enough so they use gold to store their wealth,” said Ludo Drijbooms, President of Discovery Diamond Ltd.
(1 tael=1.2 ounce)
Additional reporting and writing by Grant McCool; editing by Megan Goldin