Gold – a precious metal – is also an effective hedge against risk. The increasing demand for gold indicates a prevailing safe-haven mentality. When the economy booms and investment opportunities in production and business increase, gold becomes less attractive.
Stabilizing the gold market contributes to stabilizing the economy.
We often talk about stabilizing the food market and fuel prices, but does the gold market need to be stabilized?
According to experts, stabilizing and tightly managing the gold market is absolutely essential.
Firstly, a stable gold market is a crucial factor in maintaining the stability of the financial and economic systems in general. A drastic increase in gold prices can lead to imbalances in the financial system and negatively impact economic growth.
Secondly, gold is generally considered an asset that retains its value over the long term. When the gold market is stable, it can act as a mechanism to protect the value of a country's currency.
It is necessary to stabilize the gold market.
Furthermore, stabilizing the gold market helps narrow the gap between domestic and international gold prices, thereby limiting speculation, price manipulation, or gold smuggling for illicit profit, which poses potential risks to the domestic gold market in particular and the entire economy in general.
According to the General Statistics Office, the domestic gold price index in April increased by more than 28% compared to the same period last year. And in the early days of May, this upward trend continued, pushing the selling price of SJC gold to a record high.
The gold price index rose by more than 28% in April 2024.
Despite the high price of gold, people still have a need to buy gold as a way to save. At a gold shop in Ho Chi Minh City, many customers said they couldn't keep up with the rising price.
Gold prices are rising too fast, and gold buyers can't keep up.
In July 2023, the Directorate General of Foreign Trade (DGFT) of India issued restrictions on the import of gold jewelry, including requiring importers to obtain a government license.
These restrictions impact imports under the ASEAN Free Trade Agreement, particularly gold products from Indonesia. According to sources in the gold trade, the Indian government imposed these restrictions partly to address the significant increase in tax evasion on gold bars by importing gold from Indonesia, which is tax-exempt under the ASEAN FTA. After import, the gold jewelry and other gold items are melted down and re-smelted into new jewelry, thus avoiding the 15% import tax on gold bars.
In January 2024, the Indian Ministry of Finance increased the import duty on raw gold used in jewelry making from 11% to 15%, matching the import duty on gold bars.
In April 2023, the Bureau of Indian Standards (BIS) began implementing new regulations for the gold trade. Accordingly, each piece of gold jewelry sold must have a unique identification number, abbreviated as HUID, consisting of six alphanumeric characters. In addition to this number, the gold jewelry must also display the BIS logo and the gold's purity.
Customers can look up the HUID code on the BIS app to view information about the product's purity, the jeweler, the jeweler's registration number, and the information of the product's certification center.
According to the Indian government, HUID codes benefit consumers, manufacturers, and retailers alike, helping to protect consumers, enabling them to trace the origin of gold jewelry, and ensuring a trustworthy and transparent market.
Transparency in the gold market is also a goal that Vietnam is aiming for. The State Bank of Vietnam's Ho Chi Minh City branch has recently requested credit institutions and businesses to strictly comply with invoicing regulations when buying and selling gold, and to closely monitor the developments in the buying and selling of gold bars, publicly listing buying and selling prices at transaction points.
In particular, to increase the supply of gold and thereby reduce the price difference between domestic and international gold, the State Bank of Vietnam has organized auctions of SJC gold bars.
Businesses participating in the State Bank's gold auction.
On May 8th, the State Bank of Vietnam held an auction for 16,800 SJC gold bars with a floor price of 86.05 million VND/ounce. As a result, three entities won bids for a total of 3,400 ounces at a price equivalent to the floor price.
This is the second successful bid after five recent auctions organized by the State Bank of Vietnam. Despite lowering the minimum lot size allowed for businesses to bid from 1,400 taels to 700 taels, the total amount won only accounted for just over 20%.
To contribute to the transparency of gold trading activities, the General Department of Taxation recently proposed that the State Bank of Vietnam research and submit to competent authorities regulations mandating cashless payments for gold trading transactions, while also establishing a mechanism to control related transactions. This proposal has received various opinions.
Experts also suggest that surveys, assessments, or even pilot programs should be conducted before widespread implementation. This would allow for necessary modifications, avoiding potential problems during execution.
Clearly, the gold market cannot be allowed to spiral out of control. However, given the rapid changes and impacts from the global economic and geopolitical situation, the domestic market is also inevitably subject to fluctuations. Solutions exist, but they must be feasible with existing resources, applied promptly, targeted appropriately, and flexibly adapted.
Nguyen Pham Huu Hau, a Master of Economics and Finance, shared: “The high domestic gold price compared to the world price is due to the increasing demand for gold bars among the people, coupled with falling bank interest rates. The supply-demand balance is not close because the current supply is very insufficient. The State Bank of Vietnam also has solutions such as gold auctions, but I think this is only a temporary solution and does not solve the problem. The important thing is to amend Decree 24/2012 on gold trading. Perhaps we should abolish the monopoly and allow other businesses to import and export gold bars. We can use tax policies to manage prices, similar to gold-importing countries like China, India, or Singapore.”
According to Master Nguyen Pham Huu Hau - an expert in Economics and Finance: "Regarding short-term solutions, I think the State Bank should import more gold. Importing more gold will reduce foreign exchange reserves, but it's not a problem; in fact, gold and foreign exchange reserves are just asset exchanges for reserves."
Domestic gold supply is becoming scarce.
"Gold is also an investment channel for the people. People are rushing to buy gold, but gold is a special type of asset; it may not yield the expected returns, so people should be cautious. To stabilize gold prices, firstly, we need to increase supply, and secondly, we need to develop other investment channels so that people can participate more widely, for example, real estate and stocks. By diversifying investment channels, I think money will concentrate on more fundamental and sustainable channels such as production and business to develop the country," said Master Hau .
In each step of the economic recovery process, the achievements were not easily attained. Stabilizing the gold market is one of the efforts to maintain those achievements. In other words, stabilizing the gold market helps stabilize the economy.
Gold is a metal that withstands fire, reminding us that we must persevere and be resilient in the face of challenges to achieve a vibrant market and a sustainable future.
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Source: https://htv.vn/binh-on-thi-truong-vang-binh-on-nen-kinh-te-222120241.htm
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