UPDATE 2-Vietnam to allow gold imports to stabilise market

By John Ruwitch and Ho Binh Minh HANOI, Nov 11 (Reuters) - Vietnam's central bank on Wednesday lifted a 1-1/2-year-old ban on gold imports in a bid to stabilise the market after a sharp rise in prices helped drive the country's dong currency to a record low. "The State Bank of Vietnam will allow gold imports with a volume sufficient to intervene in the market in order to stabilise the market, combat speculation and prevent an impact on the interests of the people," the central bank said on its Web site, www.sbv.gov.vn. Five or six companies would be allowed to import unlimited quantities of gold, state-run news Web site VNexpress.net quoted State Bank of Vietnam Governor Nguyen Van Giau as saying on Wednesday afternoon. He did not give details or a timeframe. The ban on gold imports since May 2008 led to a gap between domestic and international prices, and recently traders say that spread, plus the rise in gold prices globally, triggered a surge in demand for dollars. "This morning the prices and the market went crazy, the worst time in my 20 years of trading," an owner of a gold shop in Hanoi's downtown district of Hoan Kiem said. "Prices collapsed this afternoon and the decision on gold imports will certainly help control the situation." By early afternoon on Wednesday the dong hit 19,800 per dollar -- about 7 percent lower than the rate a week ago -- before rebounding to around 19,000. For a Q+A on the currency, click: Gold leapt above 29 million dong per tael on Wednesday, or $1,261 per troy ounce at an exchange rate of 19,000 dong per dollar. Later it deflated to around 27.5 million dong. Last Wednesday it was at about 24.5 million dong per tael. Internationally, gold has gained more than 25 percent in 2009, driven by persistent weakness in the U.S. dollar, expectations of more buying from central banks and fears about the health of the global economy. It shot to a record high at $1,117.05 an ounce on Wednesday as the dollar slipped to its lowest in more than a year, lifting bullion's appeal as an alternative investment. TURNING AWAY CUSTOMERS The government responded to the price spikes earlier in the day by dispatching inspectors to gold shops, which double as foreign exchange changers, dealers said. Central bank rules allow the dong to trade with the dollar within a band of 5 percent on either side of a reference rate it sets each day. A rate of 19,800 dong per dollar is more than triple the limit. By early afternoon, gold and currency quotes were brought back down but some shops were turning away walk-in customers. The central bank blamed domestic speculators for pushing the gold price above world levels. Offshore dealers covering Vietnam said gold bars had been smuggled in from neighbouring countries to meet growing demand. "The thing is, people are cautious," a dealer in Singapore said. "The domestic price is so high because they haven't imported gold for a long time.

Basically, there's a shortage of physical gold." Vietnam consumed 115.8 tonnes of gold for jewellery and investment in 2008, up from 77.5 tonnes in 2007. Traditionally, the Vietnamese use gold for savings, jewellery and real estate transactions but when inflation is high, many choose gold or the U.S.

dollar to hedge against inflation. (Additional reporting by Lewa Pardomuan in Singapore; Editing by Clarence Fernandez) (([e-mail]; [phone]; Reuters Messaging: [e-mail])) Keywords: VIETNAM GOLD/ (If you have a query or comment on this story, send an email to [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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