What is the gold market going through?

Associate Professor, Dr. Ngo Tri Long - economic expert assessed that from 2022 onwards, the domestic gold market has shown limitations, gold prices have fluctuated abnormally, even reaching a peak of 92.4 million VND on May 10, 2024.

According to Associate Professor Dr. Long, there are many reasons for the above situation, but mainly domestic reasons. Firstly, due to the imbalance of supply and demand, when demand increases, limited supply has pushed up the price of gold. For more than 10 years, gold trading enterprises have not been allowed to import gold, while the State Bank has a monopoly on importing raw gold and there is only one brand of SJC gold bars. In addition, Vietnamese people have the habit of buying gold to store, especially when the economy is still facing many difficulties.

Second, traditional investment channels such as stocks and real estate are becoming uncertain and less attractive, and savings interest rates are continuously falling. At this time, speculative groups are looking for ways to push up gold prices, and the crowd mentality is easily attracted by the "wave".

Third, the Vietnamese gold market lacks a centralized trading place, instead, many small-scale gold shops and traders operate. This fragmentation creates price opacity and facilitates the possibility of price manipulation, creating a land for speculation.

Fourth, regarding the gold trading management mechanism, currently only the focus is on physical gold (gold bars and gold jewelry). Gold products (gold certificates, gold accounts/terms) have not been diversified. Therefore, this demand for physical gold puts pressure on domestic gold prices.

Faced with the above situation, the Government has issued Resolutions, Official Dispatches, Directives and a series of related documents to stabilize the gold market. Notably, from June 3, 2024, implementing the direction of the Prime Minister , the State Bank of Vietnam (SBV) has implemented a plan to stabilize the gold market through 4 state-owned commercial banks and SJC Company to sell to the market, at the price regulated by the SBV.

With that method - the drastic intervention of the State Bank has brought about efficiency, narrowing the gap between domestic and international gold bar prices.

Talking about this solution, experts said that this is a good solution but only a short-term emergency. "There are currently two types of prices in the gold market: The price of gold on the "black market" is about 3-4 million VND/tael higher than the price of the price stabilization units. The current stabilization solution does not adequately address people's gold demand in terms of quantity," said Mr. Long.

Too much administrative intervention, need to return market value to gold

Recently, in Ho Chi Minh City, the State Bank of Vietnam’s Ho Chi Minh City branch announced that it would collect information on gold bullion buyers and sellers and transfer it to the police to detect suspected speculation. This solution was proposed with good intentions but received many mixed opinions from the public.

Talking to Lao Dong, Dr. Chau Dinh Linh - Lecturer at Ho Chi Minh City Banking University assessed that, in fact, the habit of buying gold from people up to now is only to transact at gold selling points which are different gold shops. From there, all transactions in the market are not controlled, and some speculative activities appear in this market.

More transparent transactions and more controlled cash flow (no cash) will help control the story of profit-taking speculation.

"Through this incident, it can be seen that the goal of the management agency is to reduce the people's preference for gold. We are adjusting the gold market, like a transitional phase to a phase where all transactions become more transparent. Therefore, the management agency is introducing measures one by one to adjust the gold market. However, the management agency is intervening in the market with administrative measures, drop by drop, causing public opinion to form negative waves.

I think the Government and the State Bank have enough potential and intelligence to know what to do next, but we still need to clearly convey the message to the people about upcoming actions," said Dr. Linh.

Experts agree that Decree 24 needs to be urgently revised. This revised Decree must more comprehensively address financial products and services related to gold, not simply manage gold bars and gold jewelry.
In particular, return the production and trading of gold bars to enterprises. Commercial banks should not play the role of a focal point in trading gold bars, but should only implement derivative products (with sufficient experience and expertise). If they want to trade gold bars, they should establish an independent gold company.

Mr. Ngo Tri Long said: "Anti-goldenization cannot be achieved by administrative solutions but must shift from trading gold bars to trading other gold products (gold certificates, derivatives, etc.) on a centralized trading center.

Therefore, it is necessary to soon allow the Commodity Exchange to trade gold futures through standard futures contracts like advanced countries in the world. Participating members must meet strict standards and be allowed to import and export gold. This will not incur costs to import physical gold to sell to people."