Dong Falls as Widening Gold Price Gap May Spur Unofficial Trade

Vietnam’s dong declined the most in seven weeks on speculation the widening gap between domestic and international gold prices will boost unofficial trade in the precious metal, increasing demand for dollars. Bonds gained.

Gold fell 9.1 percent yesterday, the biggest drop since 1983, and has lost 28 percent since reaching a record high in September 2011. The disparity between local and world prices has widened to as much as 6 million dong ($287) per tael, Tuoi Tre newspaper reported today. A tael is about 1.2 ounces.

“When world gold prices dropped sharply, the gap with local prices grew bigger,” said Nguyen Ngoc Duy, a foreign-currency trader at Military Commercial Joint-Stock Bank. “That may cause smuggling of gold and would bolster dollar demand.”

The dong fell 0.3 percent to 20,925 per dollar as of 3:30 p.m. in Hanoi, the biggest drop since Feb. 26, according to data compiled by Bloomberg. The central bank set the reference rate at 20,828, unchanged since December 2011, its website showed. The currency is allowed to trade as much as 1 percent on either side of the official rate.

The yield on the five-year bonds declined two basis points, or 0.02 percentage point, to 8.55 percent, according to a daily fixing from banks compiled by Bloomberg.

Before it's here, it's on the Bloomberg Terminal.