Vietnam's Gold Habit Weighs Down Dong

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"Per income dollar, Vietnamese consume more gold than anyone else on earth."

Buying 500 Vietnamese taels of gold, a large but not exceptional purchase equivalent to a little under 19 kg., takes more than 2.5 times that weight in local bank notes.

For purchases of that size, Hanoi Gold Dealer Bao Tin Minh Chau offers complimentary armored car service and home deliveries.

Per dollar of income, the Vietnamese consume more gold on average than anyone else on earth—in 2009, more than twice as much as Indians, 10 times as much as Chinese and 44 times as much as Americans, according to World Gold Council (WGC) data.

This heavy habit is creating concerns in the corridors of power by contributing to the country's chronic trade deficit, as most gold is imported. This in turn adds to pressure on the dong, Vietnam's currency.

The WGC estimates that Vietnam's net imports of gold were worth $2.3 billion last year, or more than 20% of the country's current account deficit. At the official exchange rate, the dong has lost almost 11% of its value against the dollar since the beginning of 2009, though it has become more stable over the past few months and the black market rate indicates that it would fall still further if the currency was allowed to float freely.

"People want to invest in gold because they believe that the dong is overvalued," says Do Xuan Quynh, a manager at Bao Tin Minh Chau.

Gold demand dropped by 37% in 2009, partly as a result of the global slowdown and as investors sold off holdings into a rising market. But Do believes that as the economy recovers, gold consumption could grow as much as 50% this year.

"Demand is still growing because people don't believe in any other channel of investment," Do says.

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