The Golden Truth: Viet Nam's Decision To Close Its Gold Trading Floors

Saturday, January 2, 2010

Viet Nam's Decision To Close Its Gold Trading Floors

I have yet to see a credible "official" reason for the closing of the Viet Nam gold exchanges. I just got off the phone with a colleague, however, who does business with some Cambodians. The person he deals with told my colleague that there is significantly more demand for gold in Cambodia and Viet Nam than there is supply and that most of the gold that is sold to the citizens in those countries is smuggled in. This account is consistent with the excellent reporting on Viet Nam gold trading provided on a daily basis to the Midas report at http://www.lemetropolecafe.com/ by John Brimelow. Viet Nam has quietly become one of the largest gold importers of gold in the world. Apparently, as per the Cambodian source, the voracious appetite for gold is now endemic to all of Southeastern Asia. Even more interesting, this source told my colleague that Honk Kong and Singapore are slowly usurping London as the nexus for global physical gold trading.

I have postulated for a while now that part of China's long term goal is to become the largest owner of gold and to control the global gold trading market as part of its plan to become a global economic superpower. All the indications are there that this is now occurring, including its recent move to allow - and even encourage - its citizens to accumulate gold and silver.

Getting back to Viet Nam, I suspect that the Government's decision is an attempt to increase control and regulation of the gold market, as Viet Nam was actually the largest importer of gold in 2008. Apparently this large amount of buying has put downward pressure on the dong (Viet Namese currency), as citizens have been en masse dumping the sovereign currency in exchange for gold. Ultimately, I believe this will put upward pressure on the global price of gold, as investors in Viet Nam rush to buy as much gold as they can before the end of March, which is when all 20 gold trading floors are required to stop operations.

9 comments:

EconomicDisconnectSaturday, 02 January, 2010
It always strikes me funny that Americans use their paper money to buy asian made gadets and then the asians turn around and spend the paper on personal gold. Better hope the dollar stays the reserve currency!
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Dave in DenverSaturday, 02 January, 2010
The dollar is toast - it's just a matter of time. If you notice, China uses US dollars for every natural resource/mining company acquisition they make. I think they've done a lot more to hedge out their downside risk to holding $800 billion Treasuries that anyone realizes.
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Dave in DenverSaturday, 02 January, 2010
By the way, it will help the Broncos if the Pats roll over for the Texans tomorrow LOL
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EdwardoSaturday, 02 January, 2010
Yes, that's the scuttlebutt, that the Chinese are using their dollar holdings as collateral for their numerous resource deals.
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Julia WongSunday, 03 January, 2010
"If you notice, China uses US dollars for every natural resource/mining company acquisition they make." Good observation.

The fact that the S&P500 has been inversely correlated with the value of USD tells a lot as well. That they are exchanging the Dollars for real assets which could rise with (hyper)inflation.
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JoeSunday, 03 January, 2010
Jim Willie made the same statement about the Chinese holding less Treasuries than anyone realizes.

He also said when they get down to $500 billion they will consider that an acceptable loss and probably pull the plug on the west.
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Dave in DenverSunday, 03 January, 2010
Interesting Joe - I had no idea Willie had that theory, but I've been thinking for awhile now that the Chinese have some level of accetable loss on their dollar holdings once they've hedged out to a certain level.

BUT, I have a view that they also have a lot more gold than anyone realizes and eventually they will roll out a gold-backed currency and simultaneously revalue gold up my many multiples. They will establish gold as the measure of sovereign wealth and that reval will be their mechanism by which they "clawback" wealth they lose from pulling the plug on the dollar.
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EdwardoSunday, 03 January, 2010
The Chinese have a lot more silver than most realize, and that is the volcano that is really going to blow. The folks who argue against a gold standard have a big problem with their stance in that the dynamic duo of silver and gold has the sort of impressive track record that a solo gold standard does not.

I agree with Willie about there being a level of dollar holdings at which The Chinese will be inclined to engage in some game changing behavior. However, I think there may be more to The Chinese strategy than simply dollar divestment. I believe they want and need to develop (to a certain level) other markets than the U.S. for consumption of their goods before they will take "the next step."
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Dave in DenverSunday, 03 January, 2010
Edwardo, I agree. There will be several variables the Chinese will consider before pulling the plug on the dollar. 1) the degree to which they can hedge out their dollar holdings 2) the degree to which they can develop sustainable trade away from the U.S. and within their own system 3) the point at which they decide they can no longer tolerate using devalued dollars in trade settlement.

The 24 karat, .9999 question is, "when does this occur?"
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Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Here is the link to his entire commentary, well worth a read:

http://jessescrossroadscafe.blogspot.com/2010/07/gold-daily-chart-shock-and-awe-for.html

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie?

JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

source: www.clusterstock.com

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.