Vietnam suffers from Gold Fever

Can too much of a good thing with gold purchases by the Vietnamese cause issues for the country as a whole?

Residents in communist Vietnam still retain some old-fashioned values that Americans can definitely use - and that has to do with stashing gold so that one 'always has money.' Unfortunately, too much of a good thing being demanded, per standard laws of economics, can make the stashing more difficult and expensive. According to the World Gold Council, Vietnam bought more gold per capita last year than China or India and with this, domestic gold prices climbed by as much as 18%, well ahead of the global market's 11% increase.

Yet another major consequence of having too much of a good thing, is the fact that now the Vietnamese government is left with an 18% inflation rate on their already unstable currency, the dong. However, in doing its job 'properly,' the government did indeed foresee some of this by initiating an "alchemy of financial measures" last summer, which included a decree that placed a dominant processor and trader of gold bullion, Saigon Jewelry Company, under the control of the central bank in order to limit widespread street-level trading of gold.

But when a decree issued last summer still results in the national currency getting whooped for 18%, more drastic measures need to be taken. Along these lines, officials are now also considering a second measure which may possibly force over 10,000 jewelry shops to leave the bullion business and focus strictly on jewelry instead.

However, the Vietnamese are no fools to investing. When they compare a 14% maximum interest offered by their banks' long deposits with the 18.6% rise in cost-of-living, gold still looks mighty good. Add to that the recent slumps in both the real estate and stock markets as well as the possibility of another devaluation for the dong later this year, and you have a steamrolling gold rush.

Although full details have not yet been released, the Vietnamese government is still considering further measures to entice savers with offers of more attractive returns and security. Current estimates by the government state that between 300 and 500 tons of gold were privately held by Vietnamese citizens outside of the banking system last month.

I'm not one to support centralized government nor the taking away of powers or freedoms from people, but as I mentioned earlier, with too much of a good thing... Per the World Bank, 20 years of stable economic growth has lifted the country to a middle income status in early 2011, but now this progress is being threatened by such issues as high inflation and corruption.

Perhaps getting back to a single-digit inflation will restore public confidence and if that requires the slowing down of a gold rush that has already enjoyed an 18% rise, so be it I guess. We should also keep in mind that it isn't just the innocence of citizens buying gold causing inflation - an estimated twenty to sixty tons of gold is being smuggled into the country each year. At this point I DO have to suggest, however, that although I'm no macro-economic genius, maaaybeee this is a good time to gold-back their currency? Hint hint nudge nudge say no more...

It really is a smart thing these people are doing purchasing gold to stay safe, but I suppose each one of them will eventually have to weigh their own personal and familial wealth-and-safety versus the economic stability of the country as a whole. It's kind of an interesting problem to have I think - not good, but interesting. Wouldn't that be quite a sight in America? Imagine 'too many people' buying gold and putting our dollar through inflation. I hate to say it, but it's a problem worth having here where we seem to be having trouble on saving up anything for longer than a day.

Be safe, be wealthy and above all else, be happy.

- Mitch

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