“Unleashing” the gold market

The draft Decree amending Decree 24/2012/ND-CP will eliminate the monopoly on gold bars, "unleashing" the gold market. Photo: Duc Thanh

Does increased supply boost investment demand?

One of the important amendments proposed by the Draft Decree is to abolish the monopoly on gold bars and the monopoly on importing raw gold. Accordingly, enterprises and credit institutions that meet the conditions are allowed to import and produce gold bars.

According to the explanation of the State Bank, the annual gold import limit will be balanced by this agency based on the macroeconomic situation, monetary policy management goals, national foreign exchange reserves and the import and export situation of gold bars and raw gold.

Sharing with reporters, Dr. Nguyen Minh Phong, an economic expert, said that allowing the import of raw gold is necessary. In fact, gold import is not only to serve the demand for gold bar production, but also to serve the production of gold jewelry, aiming for export.

“Thailand’s jewelry exports reached over 2 billion USD 20 years ago and nearly 9 billion USD in 2023. The level and capacity of Vietnamese businesses and goldsmiths are not inferior. However, for a long time, Vietnam’s gold jewelry industry has been unable to import raw materials for production, so allowing the import of raw gold for production is extremely necessary,” said Mr. Phong.

Sharing the same view, Dr. Nguyen Tri Hieu, Director of the Institute for Research on Development of Global Financial and Real Estate Markets, affirmed that increasing the supply of gold will "untie" businesses.

Increasing gold supply may cause people to invest more money in gold, even creating a fever at times when world gold prices increase sharply. However, in the long term, according to Mr. Hieu, removing the monopoly and allowing the import of raw gold will help the market become more competitive and stable. In addition, increasing gold supply will also help domestic gold prices cool down, reducing the difference with world gold prices. At the same time, when gold is no longer scarce, the speculative and hoarding mentality of many people will decrease.

The draft revised Decree also enhances transparency in gold transactions (identifying the identity of gold buyers; transactions of VND 20 million or more must be transferred; mandatory recording of gold bar serial numbers on documents...). This will help verify the origin of gold transactions, limiting money laundering and corruption through gold.

Be careful with gold floors

Commenting on the Draft Amended Decree, the Gold Business Association recommended that the State Bank research and develop a legal corridor and roadmap to allow the implementation of additional products to support market liquidity such as gold futures, gold certificates, national gold exchanges, etc.

According to Mr. Huynh Trung Khanh, Senior Advisor to the World Gold Council (WGC) in Singapore, Indonesia, Thailand and Vietnam, establishing a national gold trading floor will quickly reduce the gap between domestic and world gold prices. For a country with a large gold consumption like Vietnam, this is necessary.

However, Mr. Nguyen Minh Phong said that setting up a gold exchange must be extremely careful, because Vietnam has learned a valuable lesson. If not well controlled, a gold exchange can lead to excessive speculation, causing macroeconomic instability, especially making it difficult to control exchange rates.

For his part, Mr. Nguyen Tri Hieu commented that the gold exchange will help transactions become more transparent, prices will be updated in real time, in line with fluctuations in world gold prices. However, if a gold exchange is established, it should only be a commodity gold exchange, and gold certificate trading should not be allowed because of the high risk.

It is known that in the Draft Revised Decree, the drafting agency did not mention the gold exchange. The State Bank said that after the decree is issued, the State Bank will review and amend and supplement related regulations to create a basis for commercial banks to provide gold derivative products.

When using derivative instruments, enterprises will perform accounting according to the regulations of the Ministry of Finance in Circular 210/2009/TT-BTC, guiding the application of International Accounting Standards on financial statement presentation and information disclosure for financial instruments in Vietnam.

The State Bank will also coordinate with relevant agencies to consider adding gold to the list of commodities allowed to be traded at the Commodity Exchange, according to the provisions of Decree 158/2006/ND-CP dated December 28, 2006 of the Government (as amended and supplemented). Gold trading activities on accounts will also be studied and guided along with the establishment of a centralized Gold Exchange.

The Vietnam Gold Business Association proposed that the State Bank study the form of mobilizing/lending in gold. Some banks such as Agribank and BIDV proposed allowing credit institutions to issue Gold Ownership Certificates to customers without having to conduct physical gold transactions. Gold delivery and receipt can be carried out in the future according to the agreement between the credit institution and the customer and is clearly stated on the seal/certificate.

However, according to experts, the State Bank will not allow gold mobilization and lending because this means "gold-izing" the economy.

Regarding gold custody services, the State Bank said it has received comments and will study and issue instructions, including amending and supplementing Circular 02/2016/TT-NHNN dated February 26, 2016 on asset custody services, safe deposit box and safe rental services of credit institutions.

Currently, Vietnam's foreign exchange reserves are quite thin, about 80 billion USD, equivalent to nearly 2.5 months of imports. Meanwhile, according to the recommendation of the International Monetary Fund (IMF), safe foreign exchange reserves must reach at least 3 months of imports or more. In this context, if gold is imported, foreign exchange reserves will be further depleted and the State Bank will have to consider very carefully.

While the USD Index continues to fall sharply in the world, but VND continues to depreciate against USD, the calculation of gold import quotas must be even more cautious. However, monetary policy cannot satisfy all the requirements of the economy, so it is necessary to stabilize both the exchange rate and the gold market. It is reasonable to "untie" the gold market and the State Bank needs to maintain the highest management role in the gold market, instead of directly participating in gold trading activities as it is now.

- Dr. Nguyen Tri Hieu, economic expert

Source: https://baodautu.vn/coi-troi-cho-thi-truong-vang-d334025.html