Since the beginning of the year, the gold market has probably attracted the most attention from investors. World and domestic gold prices have continuously set new peaks. In particular, when analyzing the increase in gold prices, experts pointed out the reasons: the sharp increase in world gold demand, especially demand from the over-the-counter (OTC) gold market. According to data from the World Gold Council, global gold demand in 2023 (excluding the OTC market) decreased to 4,448.4 tons, down 5.3% compared to 2022. However, when including demand from the over-the-counter (OTC) gold market and other sources, total gold demand increased to a new annual record of 4,899.8 tons, about 3.1% higher than in 2022. In particular, major central banks in the world such as China, India... have continuously bought and stored large quantities of gold in recent times.
Not to mention, geopolitical fluctuations as well as military escalation have caused many central banks to choose to buy and reserve more physical gold. Investors collect gold with the belief that gold is always a safe haven against inflation and crisis.
Faced with the strong fluctuations in world gold prices, domestic gold prices also increased rapidly, the gap between domestic gold prices and world gold prices was often 18-20 million VND/tael, with gold prices reaching a peak of 92.4 million VND/tael. Messages to stabilize the gold market were continuously sent out, forcing the State Bank to re-use the gold auction method after 11 years.
And following the direction of the Prime Minister , implementing the policy of bidding to sell gold bars to increase supply to the market, from April 19, 2024 to now, the State Bank has organized 9 auctions to sell gold bars to the market with a total volume of 48,500 taels. The type of gold bars auctioned is SJC gold produced by the State Bank, the bidding form is bidding by price. The State Bank announces the floor price for selling gold bars, the members participating in the bidding base on the contents of the State Bank's gold bar auction notice to place bids according to the price.
The State Bank of Vietnam organizes gold auctions to increase supply to neutralize market demand, thereby "cooling down" gold prices. However, this goal has not been achieved yet. Notably, the more gold is auctioned, the higher the gold price, and the gap between domestic and international gold prices is widened.
Specifically, at 9:00 a.m. on April 23, in the first gold auction of 2024, Saigon Jewelry Company listed the price of SJC gold at VND80.7 - 82.9 million/tael (buy-sell), while the winning bid price of the State Bank of Vietnam was VND81.32 million. At this time, the price of SJC gold bars was about VND7 million/tael higher than the converted world gold price.
At the most recent auction on May 23, businesses participating in the gold auction bought gold from the State Bank with the highest winning bid price of VND88.73 million/tael, the lowest winning bid price was VND88.72 million/tael. Also at the afternoon of May 23, the price of SJC gold stood at VND89.8 million/tael (selling) - VND87.8 million/tael (buying). The domestic gold price is VND15 million/tael higher than the world gold price.
By the afternoon of May 28, after the State Bank stopped gold auctions and promised to replace them with other measures, the gold price had skyrocketed again to over 90 million VND/tael, the gap between domestic and international gold prices was 18 million VND/tael.
With the history of gold auctions, it shows that before and after gold auctions, the gap between domestic and international gold prices has doubled from 7 million to 15 million VND/tael.
Economist Professor Dr. Hoang Van Cuong analyzed that to increase supply, the State Bank organized bidding, but the more bidding, the higher the price, the gap with the world gold price also increased. Obviously, the bidding solution did not achieve the goal. I think that perhaps the bidding - specifically the bidding mechanism - is a factor causing the gold price to increase.
Mr. Hoang Van Cuong said that if the initial bidding floor price is higher than the market price, then of course the winning bidder must pay higher than the floor price. And if the bid is won, it means the person who pays the highest price, the highest price, then the sale price must be higher. So the goal of the bidding is to choose the person who pays the highest price, not the goal of pulling the gold price closer to the market. Therefore, if bidding for gold wants to reduce it to be closer to the world gold price, it must be reverse bidding. The unit that pays the lowest price wins the bid. The reference floor price for bidding must also be taken from the world gold price, not the domestic price.
According to Mr. Hoang Van Cuong, the gold auction results did not achieve the goal of cooling down domestic gold prices, but in some ways, the auction was also a factor pushing gold prices higher. Because using domestic market prices as reference prices for auctions is not appropriate, it is difficult to pull domestic prices down to the target level.
The gold market is a common market of the world. Although the Vietnamese gold market is relatively isolated from the world, the source of gold is not from official import sources, but it is still smuggled in from abroad through smuggling.
Currently, the world crises, especially the geopolitical crisis, have increased the position of gold as a safe financial haven. In addition, the monetary policy of the US Federal Reserve Bank (FED) at this time is uncertain: the bank wants to reduce interest rates to promote economic development but they are very persistent in controlling inflation. Therefore, it has caused the value of the USD to decrease, thereby pushing the price of gold up. The gold market is favorable because the FED may reduce interest rates, all factors have pushed the price of gold up and affected the domestic gold price.
Domestically, the demand for gold has increased sharply, this is due to psychological factors when many people with money see that investment channels such as stocks are unstable, real estate is stagnant, bank interest rates decrease, foreign currency is difficult to buy... Therefore, gold is a prominent channel!
According to expert Truong Vi Tuan of giavang.net, when the gold auction method does not reduce the difference between the price of gold bars and the world gold price, it is understandable that the State Bank stops auctioning gold bars. This temporarily leads to limited supply, while the gold purchasing power in the market is still high, so the price of gold bars will remain high.
This expert said that the next developments of the State Bank and large gold trading enterprises are what need to be paid attention to. Accordingly, the market is still focusing on the amendment of Decree No. 24/2012/ND-CP dated April 3, 2012 on the management of gold trading activities.
According to Decree No. 24/2012/ND-CP currently in effect, Saigon Jewelry Company Limited (SJC) is not allowed to import or stamp gold bars. The stamping molds are assigned to the State Bank for management and no more gold bars have been issued in the past. Therefore, the supply of gold bars is scarce and the price difference between domestic and international prices is always high, over 15 million VND/tael.
According to this expert, if the monopoly on gold bars is removed, other businesses such as PNJ and DOJI will be allowed to produce gold bars, which will cause the price of gold bars to be pulled closer to the price of gold rings and jewelry. It can be said that only when the monopoly policy on gold bars changes will it temporarily affect the price of gold bars.
Economist Dr. Nguyen Tri Hieu also analyzed that recently, the difference in domestic gold price compared to world gold price comes from the fact that these two markets are not connected to each other, because the State Bank does not import gold, so they become unconnected vessels. The State Bank is the valve to block the connection between the connected vessels.
In addition, the continuously high domestic gold price may be affected by other factors: such as the Vietnamese people's fear of inflation, people see the gold price as a test to predict the inflation situation, and the fear of high inflation makes people buy gold to secure their assets.
Economist Dr. Nguyen Tri Hieu commented that in the world, there are Central Banks (CBs) that manage the gold market, but most developed countries only manage monetary policy, gold is considered a non-monetary product, and there needs to be an agency outside of monetary policy management to manage the gold market.
The State Bank of Vietnam should consider allowing gold trading enterprises to import, increasing the supply for the gold market. It is possible to remove the SJC brand, so that this brand is no longer exclusive and so that products on the gold market have equality. When the quantity meets the demand, the gold market will certainly stabilize.
To solve the root cause of the problem, the Government needs to direct specialized agencies to build a gold trading floor in which buying and selling transactions are clearly shown on the market like stocks, from which people can correctly assess the reality, which will reduce the gold fever, reduce the phenomenon of herding and rushing to buy gold...
In addition, large gold transactions must be transferred because gold transactions using cash will not leave traces, making it difficult to collect taxes or find money laundering criminals. Therefore, transactions of 100 million VND must be transferred to leave traces. All gold transactions must be taxed, because currently, gold buyers and sellers on the market do not have to pay taxes...
Experts say that to stabilize the gold market, managers are considering a fundamental solution, which is to provide enough raw materials for businesses, instead of using the temporary solution of gold bidding.
The Macroeconomic Research Group of the Vietnam Institute for Economic and Policy Research (VERP) and the Macroeconomic Research Department of Think Future (led by Mr. Nguyen Duc Hung Linh, economist and founder of Think Future Consultancy) said that administrative measures have become especially important to ensure transparency and prevent price manipulation. Inspecting the gold market, requiring the use of invoices, investigating manipulation... will not cost foreign exchange reserves, but can bring immediate high efficiency.
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