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Who Says Gold Doesn’t Have Yield?

In Vietnam anyways, the current rate is around 3% per year, not including any capital appreciation of the gold itself.  This is because, as I've covered many times here, Vietnam is a three currency economy: the dong, dollar and gold all circulate in everyday usage.  Recent actions by the State Bank of Vietnam (SBV) to curtail the use of both the dollar and gold have not shut them down yet and the banks have responded by offering different products.  So, out with demand deposits of gold and in with gold storage certificates which have no fees and pay a dividend.

A woman at the Dong A Bank’s branch on Nguyen Cong Tru Street in district 1 of HCM City, said that previously, she deposited 9 taels of gold at the bank at the interest rate of 2 percent per annum. However, she has been advised by the bank officer to shift to use the gold keeping service.

“If I use the service, I would get the dividend of 3 percent per annum. Meanwhile, the gold deposit interest rate has been lowered to 0.4 percent in a plan to gradually eliminate gold deposits initiated by the State Bank,” she said.

The current situation in the banking sector has increased the bank's need for high quality capital and the SBV's curtailing demand deposit accounts in gold has led the banks to issue gold certificates of deposit that work similarly to similar instruments denominated in dollars.

The minimum deposit depends on the bank and the product, but it is usually between 1 and 3 taels, which in Vietnam is 37.5 grams, or 1.2056 troy ounces.  Most of the major banks offer gold CDs of some form from 1 month to 5 years in length.  The best rates are offered in the 1-6 month range.

Currently Eximbank (HoSE:EIB) offers a 3% CD of 1, 2 or 3 month maturity for a minimum 10 tael deposit.  For smaller amount the rate is 2.1%.  Earlier in the year the rates at DongA bank rose to more than 4.5% but rates have dropped with the easing of credit thanks to two 1% rate drops by the SBV since early March.  But, other than dong deposit rates (12%), no other foreign currency other than the Australian Dollar offers a better return right now than gold.

For foreign investors, there are no restrictions to opening up a deposit account in dong, nor buying CDs in dong.  For other currencies there are restrictions but it is possible. 


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Peter Pham is an author, international fund manager, and a registered financial director by the Cayman Monetary Authority (CIMA). In 2013 he published his first book entitled, The Big Trade: Simple Strategies for Maximum Market Returns. He currently manages the portfolio of a global hedge fund and runs an asset management company, Phoenix Capital.  (read more)

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