Vietnam's Rules Mean Less Gold for Switzerland

Financial Times, Ben Bland

Amid a host of deep-seated economic problems, Vietnam's large trade deficit shows no sign of abating. But the "Vietnam effect" helped Switzerland to post a record monthly trade surplus in May, according to Swiss customs.

The FT revealed in March how Vietnamese banks and gold trading houses had sent billions of dollars of high-grade gold jewelry to be smelted in Switzerland in the last two years to circumvent government restrictions on bullion exports.

The collapse of this lucrative arbitrage trade helped the Swiss notch up a record monthly trade surplus of SFr 3.3B ($3.9B) in May 2010.

This May, imports shrank to just 813 kilograms, valued at SFr34m.

Vietnam is one of the world's biggest per capita consumers of gold, which is seen by many families as an inflation-proof store of value. Switzerland dominates the global gold refining industry, turning jewelry and other ornaments into standard bullion.

In recent years, gold in Vietnam has tended to trade at a premium to the world price because of import restrictions designed to stem the flow of money out of the Vietnamese currency, the dong.

The sale of gold jewelry to Switzerland has spiked on the rare occasions when the onshore gold price has been lower than the international price. This was the case until last October, when onshore gold prices started rising again as inflation gathered pace.

Vietnam's government announced plans to restrict the gold market in February. Since then, gold has again traded at a discount to global prices but shipments to Switzerland, while rising sharply month-on-month in April and May, have remained a tiny fraction of what they were last year.