Warehouses to help stabilise gold prices

Last week saw the country’s first two bonded warehouses open, a move that is expected to help stabilise the domestic gold market and drive prices closer to global levels.

Agribank Jewelry Co (AJC) opened a bonded warehouse on June 25 in Ha Noi. Four days later, Sai Gon Jewelry Co (SJC) followed suit in HCM City.

"We expect to reduce processing times for gold imports from two to three days to less than a day, and cut transportation costs from US$1.00-1.10 a tael to $0.60-0.70," says AJC Director Nguyen Thanh Truc.

The gold depositories will also help consumers cut costs by eliminating much of the transportation, customs, and airport storage fees, and reduce interest rate payments on bank loans, says Nguyen Huu Thuan, SJC deputy general director.

In addition, companies will no longer have to transport gold via intermediaries in Hong Kong, Singapore, Switzerland or Japan. Janet Leung, director of Hong Kong-based Securicor, says the bonded warehouses will make gold imports easier to handle and more secure.

Going through intermediaries also requires the use of high cost insurance programmes, which can run as much as $1,500 to ship 100 kilograms of gold.

The warehouses are also expected to stabilise domestic gold prices by adequately managing supply levels. Previously, shortages often caused local prices to trade VND500,000-700,000 ($31.25-43.75) a tael higher compared to global levels, says SJC general director cum chairman of the Viet Nam Gold Association, Nguyen Thanh Long.

The International Gold Council this year estimates that demand for gold in Viet Nam could reach 70-80 tonnes. A Brink’s Viet Nam representative, Ben Van Kerkwijk predicts in the short run demand will accelerate.

Companies are already showing interest in storing gold and other precious metals at the two depositories.

Truc says that Switzerland’s PB Bank and Japan’s Mutsui Group were finalising paperwork to store gold in AJC’s warehouse, while Securicor has already made a deposit.

SJC’s bonded warehouse has drawn interest from international banks including HSBC, Mutsui Corp, Bipelle Group, DBS Bank Ltd and the Bank of Scotia Mocatta, said Thuan. Bipelle, an arm of Banca Popolare Italiana Group, has already finalised paperwork to deposit 1-2 tonnes of gold with SJC.

As importing gold becomes easier, SJC expects to process up to 12,000 taels of gold every five days against the current rate of 8,000 taels in seven days.

A problem, though, is finding adequate insurance coverage. Foreign partners often do not want to use a local insurer.

AJC has solved the problem by allowing Securicor to cover insurance issues by signing contracts with foreign policy providers. This set up limits AJC’s access to foreign partners, says Truc.

The State Bank of Viet Nam approved the creation of bonded warehouses to generate profits for both the private sector and central bank. The difference, though, is depositories have to spend more time concentrating on consumer demands and needs, says Nguyen Dong Tien, deputy central bank governor.

Tien also says the central bank wants to have only a few bonded warehouses instead of creating multiple players, which would be harder to control.

Source: VNS