Vietnam

Vietnam’s Gold Market

By Huynh Trung Khanh, Vice Chairman, Vietnam Gold Traders Association

Image of the DOJI Gold Campaign

Gold has played an important role in Vietnam’s economy and in the lives of locals for many
years. In the 20th century, Vietnam experienced war, high inflation, economic instability and currency
devaluation. As a result, Vietnamese people trust gold more than the country’s currency, and also is their
preferred asset class, as with other Asians.

In 2021, Vietnam was the largest gold bullion and coin market in Southeast Asia and ranked among
the top 10 globally. According to the World Gold Council, its demand for bars and coins was 31.1 tonnes,
exceeding Thailand and Indonesia, whose demand was 28.7 and 19.8 tonnes, respectively. Adding to its demand for
jewellery, Vietnam’s consumer gold demand increased to 43 tonnes, second in the region, behind Indonesia’s 46.8
tonnes.

Long history

Before 1975, gold was used as a medium of exchange and a unit of measurement. In the 1960’s, a
Honda Cub motorbike was priced at 3 taels of gold (1 tael = 37.5 grams), and the monthly salary of a senior
government official was pegged at 2 taels of gold.

Kim Thanh was a well-known refiner and bullion dealer in Southeast Asia before and during the
Vietnam War (1 Nov 1955 to 30 April 1975). Its gold bars (1 tael, with 99.99% purity) were used as a means of
exchange and a store of value. After the Vietnam War, Kim Thanh gold bars, or Swiss bars, were portable assets
for the Vietnamese boat people and other refugees.

AFTER THE VIETNAM WAR WAS
A PERIOD OF HYPERINFLATION,
WHICH SAW DOUBLE-DIGIT
INFLATION
FROM 1975 TO THE EARLY 1990S.

After the Vietnam War, there was a period of hyperinflation, which saw double-digit inflation
from 1975 to the early 1990s, reaching its peak in 1986 (875%). In the late 1980s to the early 1990s, real
estate, motorcycles, televisions, livestock and even agricultural products were priced and traded in gold.
However, as inflation eased in the early 2000s, gold’s functions in exchange and price measurement gradually
decreased, alongside the use and exchange of the Kim Thanh Gold Bar.

Economic Overview (2020)

Population

98.5

million

GDP
GROWTH

2.9%

EXPORT

US$

226

billion

IMPORTS

US$

181

billion

GDP per
capita

$2,785

CPI

2.8%

International
reserves

US$

78.3

billion

External debt as a
share of GDP

US$

47.1

%

Source: World Bank and Vietnam GSO

Saigon Jewelry Company (SJC) was the largest gold tael bar production and distribution company in
Vietnam, with SJC gold bars dominating the market, accounting for 90% of the gold bullion market share in the
domestic market, with more than 22 million bars (equivalent to 825 tonnes) in circulation since its introduction
into the market in 1989. From 2012, with the implementation of Decree No. 24 by the State Bank of Vietnam (SBV),
the SJC gold tael bar has been considered the national bar brand and falls under the close supervision of SBV,
which tightly controls its production and distribution network. Since then, production of SJC tael bars has been
extremely limited, while bar demand is still growing strong, making them like “rare collection items” with a
premium reaching VND 20 million per tael (US$700 per troy oz.) in February 2022.

Despite being hailed as one of Southeast Asia’s fastest-growing economies and one of the few
countries to have positive economic growth despite the pandemic, with GDP growth of 2.91% in 2020, Vietnam still
lags its global counterparts in cashless and digital transactions. More than 95% of all payments in the country
take place using cash or gold.

Some 47 years after the reunification of Vietnam, the national currency, the Vietnamese dong
(VND), is not yet convertible for economic and political reasons, and gold bars and chi rings are still the
preferred hedging tool for the Vietnamese public (with at least 500 tonnes of gold in hoarding as per the
official estimates) against the nearly constant inflation rate, as well as the primary store of wealth for the
rural class of the Mekong Delta, which always have a very close affinity to gold since the region founding in
the 17th century.

Development of Vietnam’s Gold Market (1988–2012)

The development of the Vietnamese economy began with the introduction of Doi Moi, or renovation,
in December 1986. The set of economic reforms aimed to develop Vietnam’s centrally planned economy into a
market-driven one with a socialist orientation.

The early 1990s witnessed the first wave of foreign direct investment (FDI) into Vietnam, which
pushed its GDP to 8–9% by the mid-1990s. In 1997, the currency crisis hit Asia, particularly Thailand and
Indonesia, but its effects on Vietnam were less pronounced, as the country’s financial market was not open to
foreign countries. The damage in Vietnam was limited to a fall in GDP, to 4% in 1999.

The local government in Ho Chi Minh City approved the manufacture of gold bars weighing in taels
in 1988, of which 1 tael is almost equivalent to 37.5 grams. While other producers soon produced their imprinted
gold bars, SJC gold bars were the most circulated, with more than 22 million Golden Dragon tael bars issued by
SJC through several gold bar promotional campaigns, such as the Gold Accumulation Scheme and Gold Savings Box,
by the late 1990s. The Vietnamese also purchased high-priced goods with SJC gold bars and listed property prices
in SJC taels.

In the 2000s, foreign direct investment (FDI) flowed back into Vietnam. This pushed its GDP above
8% in 2005, a level that was maintained for three years. The growth in FDI was 8.5% and exceeded US$20 billion
in 2007. This growth created a new-found appetite for investment among the Vietnamese. Gold, real estate and
stocks became popular asset classes for investments.

The government abolished all administrative licensing for the management of gold trading
activities in 1999, and in the following year, the State Bank of Vietnam, the country’s central bank, allowed
credit institutions to mobilise gold in term deposits along with Vietnamese dong deposits guaranteed by gold.
Besides that, the import of gold was permitted in 2001.

In 2005, Vietnam’s finance ministry reduced the import tax on gold bars from 1% to 0.5%, and the
following year, the central bank approved margin trading on domestic and foreign gold. In 2007, the Asian
Commercial Bank opened leveraged gold trading facilities, and many banks followed suit in opening similar
trading facilities. However, while this increased gold imports, it also increased the country’s trade deficit.

In June 2008, the government decided to stop the import of gold. However, this created a surge in
gold prices and resulted in more parallel imports. In November 2009, the government resumed gold imports, which
resulted in a sharp increase in import figures and a sharp drop in reserves.

SJC Tael
Bars

PNJ Gold Bar Promotion

The Gold Market Under Control (2012 – April 2022)

After years of active and free trading, particularly from 2008 to 2010, the central
bank
decided to take action to cool the gold market. It issued control measures, which included the
closure
of more than 20 gold trading floors.

The market has been stable since the Vietnamese government issued a new decree in 2012
to
enable the central bank to directly intervene in the gold market. The State Bank of Vietnam thus
became
the sole controller of gold trading in the country. The new rules meant that only companies with
a
minimum capital of 100 billion Vietnamese dong (US$4,356), yearly tax payments of 500 million
Vietnamese
dong, and branches in a minimum of three provinces would be allowed to trade gold and import
gold bars.
However, this put many small gold traders out of business. The number of gold traders decreased
sharply
from over 10,000 to around 2,500.

Some credit institutions and jewellery manufacturers had to close, as a result of the
new
rules, which stated that a credit institution must own a charter capital of at least 3
trillion
Vietnamese dong (US$131 million) and have registered for gold bar trading and be based in at least
five
provinces and municipalities. In order to qualify as a gold jewellery manufacturer, the company must
be
lawfully established, possess a business registration certificate to make gold jewellery, and have
the
necessary production facilities and equipment.

According to information found at the State Bank of Vietnam website, we understand that
the
gold market is still under very strict controls, and there is not much freedom to import and export
gold.
We also understand that the Vietnamese government is solely authorised to produce gold bullion,
and it is
also the only entity authorised to import and export raw gold for bullion production.
Companies can import
raw materials used in gold jewellery production, but this requires a license from
the central bank, which
is also required for trading gold bullion in Vietnam.

The following list of prohibited acts was published in Vietnam Law & Legal Forum
magazine
on 27 April 2012:

Prohibited acts in gold trading under Decree No. 24/2012/ND-CP of April 3, 2012:

• Producing gold jewellery and art craft without a certificate of business legibility granted by
  the
  State Bank;
• Trading in gold bars; or importing or exporting gold material without a State Bank license;
• Individuals bringing gold upon entry or exit in excess of prescribed limit without a State
  Bank
  license;
• Using gold as a means of payment;
• Producing gold bars in contravention of this Decree;
• Engaged in other gold trading activities without the Prime Minister’s permission and a State
  Bank
  license;
• Violating this Decree and other related laws.

The decree created problems for local gold jewellery manufacturers, as they could no
longer
access gold for import purposes. The central bank later gave permission to a few firms to import
gold under
their strict supervision, but as yet no gold import quota has been granted.

Despite the strict rules governing the gold trade, there is no shortage of imported
gold
bars in the market as there is a healthy underground market for gold with a higher premium of
US$40/troy
oz. from Cambodia, Laos and China. Additionally, while the gold retail distribution network has
changed
superficially on the surface, the core business remains strong, with about 10,000 gold shops in
the
country, which sell gold chi rings over the counter and gold tael bars under the counter.

On 27 December 2019, SBV released Circular 29/TT-NHNN, which amended and supplemented
some
articles of Circular No.16/2012/TT-NHNN dated 25 May 2012. It also paved the way for government
officials
to implement Decree 24, managing gold trading operations.

There were four articles in Circular 29/TT-NHNN29, which took effect on 12th February
2020:

1. It abolished three administrative procedures regarding:
   1. Changes in the name and address of a licensed gold bullion trading point;
   2. Supplementing a new gold bullion trading point;
   3. Requesting for termination of gold bullion trading operations at a licensed gold bullion
      trading
      point.
2. Licensed credit institutions/businesses with gold bullion trading operations need to provide
   quarterly
   reports to the SBV when they make adjustments or changes to the gold bullion trading
   points.
3. It simplified some regulations on the reporting procedures enforced upon the SBV municipal
   and
   provincial branches and the credit institutions/businesses with gold bullion trading operations.

DOJI gold coins

Over the past 10 years, the Vietnam gold market appears to be stable, with many
business
activities going underground, such as sourcing gold raw materials needed for gold
jewellery
manufacturing and producing investment gold chi rings. Therefore, the Vietnam Gold Traders
Association
has submitted several petitions to the Government and the SBV, asking for the following:

1. The grant of import quotas for gold raw material used in gold jewellery fabrication as stipulated
   by
   Decree 24 and accordingly to production demand proofs submitted by key manufacturers.
2. The authorisation for major gold companies to produce their own branded gold tael bars to match
   the
   growing demand for investment bars and to bring down the high sales premium of SJC bars down
   to
   acceptable levels.
3. The set-up of a national Gold Exchange (based on the SGE model) under the management and supervision
   of
   the SBV to provide a regulated domestic market linking to regional and international gold
   markets, to
   cater for the supply and demand in gold of local manufacturers and retailers.

Jewellery market

Decree No. 24/2012/ND-CP has enforced stricter control over gold and jewellery businesses.
Policymakers authorised only a few companies, which include Sai Gon Jewelry Company Limited (SJC), Phu Nhuan
Jewelry Joint Stock Company (PNJ), Doji Jewelry Corporation (Doji) and Bao Tin Minh Chau Jewelry and Gemstone
Co. Ltd (BTMC).

However, these big four jewellery companies only occupy 20% of the market share, with the
remaining accounted by small traditional family-owned businesses and minor manufacturers and retailers.

Retail investment

Starting in 2012, as per Decree 24, the SBV only authorised the production and circulation of the
SJC Golden Dragon tael bar as the official national bar brand. The SBV also banned all other forms of gold tael
bars from circulation.

But as presented above, the premium sales of SJC bars have increased to a record high level.
Therefore, other gold manufacturers have produced and retailed other forms of 24 carat gold products such as chi
rings, gold medallions and emblems for investment purposes.

VIETNAM’S LACK OF DIGITAL PRODUCTS
HAS RESULTED IN LITTLE OWNERSHIP
OPTIONS APART
FROM BUYING OPRIONS
PHYSICAL GOLD.

Digital gold

Vietnam’s lack of digital products has resulted in little ownership options apart
from
buying physical gold. Only high net worth individuals who have access to overseas investment
accounts
invest in physical gold through digital or online platforms. For example, only 7% of all
Vietnamese
investors have digital gold products. However, digital gold products account for 30% of their
portfolio
on average among these investors, highlighting Vietnam’s potential as a market.

Vietnam is also expanding tremendously in the FinTech industry. The total number
of
financial technology companies increased from 40 to 154 from 2016 to 2020. Lastly, according to
the
World Gold Council (WGC), younger Vietnamese are receptive to purchasing gold stored elsewhere.
Among
the 18 to 34 years old segment, 74% are keen to have vaulted gold, while 76% expressed interest
in
starting a gold investment bank account, while 48% would like to purchase gold from a digital
platform.
Hence, the market is ripe for the introduction of digital gold accounts.

Summary

On the surface, the gold market in Vietnam is a highly regulated one, with the State Bank
of
Vietnam controlling nearly all aspects of gold trading and manufacturing. However, in practice, there
is a
thriving underground market to meet the demand of about 50-60 tonnes of gold per year, according to
Metals
Focus and WGC data. With an average GDP growth rate of 6.5%, we can expect a potential increase
in demand,
for both jewellery and retail investment, to 70-80 tonnes of gold per annum, in the next five
years.

Huynh Trung Khanh has more than 25
years
of experience in the Vietnamese gold industry, first working for the World Gold Council (Asia)
as
Vietnam Country Manager before setting up his own gold consultancy business (VGC) in 2003
providing
brokering and consultancy services to Saigon Jewellery Company (SJC), PhuNhuan Jewellery
Joint-Stock
Company (PNJ), Standard Bank Plc, StoneX and World Gold Council.

As a founding member of the Vietnam Gold Traders Association (VGTA), since 1998,
Khanh
has actively participated in the deregulation of the Vietnam gold market as Vice Chairman of
VGTA,
heading the External Relations Department of its Executive Committee.