Vietnam and Gold

Many Asian countries have strong affinity for gold, with Vietnam apparently at the top of the list. On a per-capita-income basis, Vietnam consumes twice as much gold as India and 10 times that of China.

Vietnam’s gold market has blossomed in response to a lack of confidence in the country’s currency, according to a story in yesterday’s Financial Times. Since the beginning of 2009, the Vietnamese dong has lost 11 percent of its official value, while gold has risen roughly 42 percent in U.S. dollar terms.

This has spurred many Vietnamese banks to seek out more gold. Last year, as the world climbed out of a crisis, Vietnamese banks paid 3 percentage points more in interest to those making deposits in gold than deposits in dollars.

A key quote from the story: “Demand [for gold] is still growing because people don’t believe in any other channel of investment.”

Vietnam (population 86 million) has seen rapid economic growth in recent years. Its per-capita income of $1,050 last year was nearly fivefold higher than it was in the mid 1990s, and in Hanoi, the income level is closing in on $2,000 per person, according to government figures.

Net retail gold investment in Vietnam reached 14.1 metric tons (543,000 ounces) during the first quarter of 2010, up 36 percent year over year, according to the World Gold Council. Add to that a 20 percent increase in gold jewelry demand, and you see a steadily growing gold market.

Those figures don’t reflect the amount of gold that isn’t tracked or deposited in banks. A Vietnam-based economist estimates that some $30 billion worth of “street gold”—almost a third of the country’s GDP—is held outside of the banking system.

In absolute terms, the Vietnamese gold market may pale in comparison to China and India, but its strong cultural connection and history with gold should keep the country’s gold market an active one regardless of price.

About Frank Holmes 263 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

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