Vietnam wants decree to “mobilize” citizens’ gold, could sell 500 tonnes. And you were worried about IMF and Paulson dumping bullion

The bank wants to “exchange the bullion for foreign currencies” says the army newsletter, in other words, the world gold market could suddenly be forced to deal with vast new supplies. Only about 2,500 tonnes of gold are mined annually and a further 1,650 tonnes are recycled.

The People’s Army Newspaper Online reports according to the state bank’s calculations, the amount of gold  held by Vietnamese citizens is about 300 – 500 tonnes, valued at $16.59 – $27.65 billion.

“We believe that with these tools, we, on the one hand, can prevent gold speculation in the economy, stabilise gold market and adjust domestic gold prices in accordance with the world price,” he [Governor Nguyen Van Binh] said. “On the other hand, we can mobilise gold from citizens to help socio-economic development.”

The Vietnam state bank may be onto something.

Although on a completely different scale it has been argued that Indians’ love of gold is destroying their economy. The FT quotes research that households on the subcontinent are hoarding 18,000 metric tonnes of gold worth over $950 billion, representing 50% of the country’s GDP:

The vast amounts of gold widens the country’s current account deficit, weakens the rupee and generally keeps money that could flow into the economy locked up in cupboards and jewellery boxes.

Nevertheless, Vietnam would be acting contrary to the recent actions of central banks – after two decades of being net sellers of gold, central banks, particularly in Asia, are now buying gold at a record pace.

But given the situation in Euroland, a reversal of this trend is very much in the realm of possibility.

While Germany has stated that its gold reserves are untouchable, the IMF and other institutions selling gold has been bandied about as as solution for European leaders struggling to find ways to finance the bailout of countries such as Greece.

The IMF, which holds 2,800 tonnes of gold, said earlier this month it needs to raise $500 billion in lending resources and should it command gold sales for the purpose the impact on gold and silver could be devastating according to MarketWatch:

This is the type of fat tail event also known as black swan that can blind side gold and silver investors. Precious metal investors are well advised to pay close attention to deliberations within IMF. If there is an actual big sale of gold by IMF, gold can easily fall to $1200.

Another source of supply is legendary hedge fund guru John Paulson. The FT has gone so far as to call Paulson’s dominant role in the gold market a ‘curse’ and foresees a dash for cash:

Knowing that Paulson & Co holds more gold than many central banks, and that it is struggling, it only takes a short leap of imagination to worry that he might be forced to sell it. Indeed, in the third quarter of last year, Paulson & Co sold ETF shares equivalent to roughly 34 tonnes of gold – and in September the gold price fell 11 per cent.