Gold traders fret opaque exchange rate

Mandalay gold dealers are seeing their business complicated by the difficulty determining the daily kyat-dollar exchange rate, with dealers working to avoid too much volatility in price.

While dealers had previously been able to simply ask money changers for the kyat-dollar rate each day, many dealers have been reluctant to do so since the unofficial market exchange rate moved outside the Central Bank of Myanmar’s official rate.

“In the past, we could ask the daily exchange rate from them openly. Now, the rate on their signboard is usually blank,” said Ko Maw from Aung Thamardi gold shop.

“It is not good. In one place, the rate is K1180 per dollar, and in another it is K1170, so the difference is K10. That makes a big difference when buying or selling gold.”

The Central Bank maintains an official reference rate for dollar-kyat exchange. It is illegal to trade outside a band of plus or minus 0.8 percent of this rate, though the parallel market rate is currently different from the official rate.

Exchanges would rather use the market rate than the official rate, and many are continuing businesses using market rates. However, they are now generally hiding their rates for outside scrutiny so as to avoid attention from authorities.

Gold prices also depend heavily on the exchange rate, as gold prices otherwise closely track international prices.

Since international gold is denominated in dollars, but locally it is denominated in kyat, the value of the dollar-kyat exchange rate is crucial for local gold dealers to know when buying or selling the precious metal.

On July 4, one tical (0.576 ounces or 0.527 troy ounces) cost K740,000 in Yangon and K739,300 in Yangon. The international price of gold meanwhile was about US$1164 a troy ounce.

International gold prices have not moved much in months. However, local gold hit a peak in early June as the value of the kyat against the dollar bottomed out. At one point a dollar traded at K1300 on the market, though it has since rebounded nearer to K1190. The Central Bank of Myanmar’s rate was K1125 per dollar yesterday, the highest it has been this year.

U Tin Tun, chair of the Mandalay Region Gold Traders Association, said traders in Mandalay work together to keep the price of gold from moving too quickly in any direction.

“The reason we don’t want an open market is we want to look after gold,” he said.

“There have been abnormal swings in prices, particularly in Yangon. After we took steps to control prices, Yangon followed.”

U Tin Tun said much of the problem has come from the effect of exchange rates on the gold price.

“On one day at 12:30pm, the exchange rate was K1290 a dollar, but we waited until 1pm and then 2:30pm and there had been a decline to K1235 a dollar. That’s a difference of K55, and that meant a large difference in the gold price, which fell from K805,000 to K740,000 a tical that day,” he said. “But in Mandalay, we never let the gold price go past K800,000.”

He added that in Myanmar, gold is seen as a safe haven during times of political instability, such as the introduction of new notes or inflationary concerns.

“The actual gold price can’t be controlled, but it can be manipulated by people due to their greed,” he said.

U Tin Tun said that the spread of information is the most important determinant for gold dealers. If news grows that the Yangon and Mandalay associations have lots of gold to sell, the price will drop.

On a normal day, about 20 viss (or 2000 tical) of gold is traded in Mandalay markets. Often, people sell their gold back to shops to obtain cash to meet expenses.

Interest in gold also depends on other markets such as jade and property. Both of these two have slowed down recently, though gold is still primarily determined by international prices.

The dealers said that both Mandalay and Yangon associations attempt to keep the price of gold from fluctuating too much. They added that in other countries, the government plays a more direct role in the price of gold.

Yet it is not only the price of gold that is affected by the exchange rate.

“Importers and petrol traders need dollars,” said U Than Tun, deputy chair of the Mandalay gold association. “The Central Bank doesn’t do its work properly. They don’t want to see use of the dollar.

“Now the Central Bank is selling dollars, but it is not enough. Dollars are also important for other businesses like jade trading in Nay Pyi Taw. But when you strip away dollars, gold price depends on politics.”

The Mandalay association has called on dealers not to trade in large volumes, and also to end the sale of gold to neighbouring countries such as China and India.

Government officials also periodically discuss plans to open a central gold market in Mandalay, as well as different laws, regulations and taxes. Gold is produced on a small-scale level in Mandalay and Sagaing Region as well as Kachin State, though insiders say Kachin production has slid in recent years.

Source: Myanmar Times

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