"Cool down" the gold market with a short-term solution?

The State Bank's announcement that it has completed preparations to re-organize gold bar auctions after an 11-year hiatus to increase market supply is attracting much public attention. However, this event has also received mixed opinions from experts and economists . Some even believe that this is just a short-term solution to "cool down" the market for this important commodity.

Illustration: MP

Timely, appropriate to the actual context

Considered a "shelter" for cash flow when other investment channels have problems, since the beginning of 2024 until now, gold has become an investment channel with very high profits. The proof is that in just nearly four months, the world gold price has increased by 16%, while the domestic gold ring price has also increased by 25% compared to the end of 2023. Breaking all previous records, SJC gold bars at times touched nearly 85 million VND/tael, while SJC gold rings reached 79 million VND/tael. The situation of shortage of goods, even "out of stock", selling in limited quantities... although not frequent, has happened here and there.

Commenting on the gold price movement, in an interview with a reporter from the Communist Party Electronic Newspaper, Associate Professor, Dr. Dinh Trong Thinh - an economic expert, said that one of the main reasons for the gold price continuously breaking the previous record is due to the strong increase in demand from central banks of many countries. Geopolitical instability, large-scale wars have taken place, along with the expectation that the US Federal Reserve (Fed) will cut interest rates this year, further increasing this demand. In fact, not only central banks of countries are increasing their purchases, but investment funds and small investors are also pouring their wallets into the gold investment race. The sudden increase in demand has pushed gold prices to continuously increase. Currently, strong foreign currencies, including the USD, although also increasing in price, are less attractive compared to gold.

In particular, in the context of low savings interest rates, a volatile stock market, and unrecovered real estate, when gold prices are high, investors are impatient and afraid of missing out on investment. In the "gold fever", a large amount of money is moving from savings to this attractive investment channel, further boosting gold transactions in recent days, and it is understandable that many people are investing in gold. On the other hand, the fact that authorities are rushing to inspect gold trading activities makes gold even "hotter".

In order to implement the requirements set forth by the Prime Minister in the latest directive on gold market management, on just one day, April 15, the State Bank of Vietnam issued three documents to relevant ministries and branches requesting coordination. On the same day, the agency also issued an official dispatch directing credit institutions and businesses licensed to buy and sell gold bars to perform specific tasks to improve transparency and efficiency in gold market management.

Previously, the State Bank also sent a message about completing preparations for the resumption of gold bar auctions to increase market supply. This is the first time in 11 years that gold auctions will be held again. According to the agency's plan, the type of gold auctioned will be SJC gold bars, the gold bar auction notice will be sent to credit institutions and businesses one day before the auction and the results will be announced after the auction.

The goal of the gold bar auction is to intervene promptly and immediately handle the situation of high price difference between domestic and international gold prices, ensuring that this market operates stably, healthily, openly, transparently and effectively, in accordance with the Prime Minister's direction.

In the face of positive moves from the State Bank when proposing a plan to "cool down" the gold market, according to Associate Professor, Dr. Dinh Trong Thinh, from the perspective of state management, the agency's synchronous implementation of many solutions to respond to unpredictable developments in the domestic gold market is timely and appropriate to the actual context of the domestic gold market. Firstly, it is not the time to immediately commercialize the gold market as is the trend in some countries in the world. "Letting the gold price float" according to market fluctuations will lead to fluctuations in some important foreign currencies such as the USD due to the close connection of these special commodities.

Second, with the view of maintaining the necessary caution, although the State Bank (the main responsible agency) is quite urgent, it is not easy to implement the review, develop a decree amending, supplementing or replacing Decree No. 24/2012/ND-CP on the management of gold market activities in the short term. In fact, although Vietnam has many remarkable achievements in socio-economic development, the scale of the economy as well as its great dependence on import and export factors, direct impacts from geopolitical fluctuations, military conflicts between countries and territories in the world. Moreover, to achieve the proposed socio-economic goals, direct intervention from state management agencies is still needed.

Associate Professor, Dr. Dinh Trong Thinh - who participated in the development of Decree No. 24/2012/ND-CP (dated April 3, 2012) on the management of gold trading activities, said that this decree was born and fulfilled its mission. However, up to now, the supply-demand relationship is not balanced, so the Prime Minister has directed that it is necessary to restore the balance between the supply-demand relationship of gold and narrow the gap between domestic and world gold prices. The need for a legal document to replace this document is a long-term solution. If it is required at this time, it seems too hasty, unreasonable and unscientific, as well as urgent in the current practical context.

It is difficult to diagnose “fever” with… short-term solutions

Back to the story of "gold auction" - an issue that has received much public attention, but has received many conflicting opinions from experts and economists, although this is not a new issue, but has been implemented by the State Bank for more than 11 years. To be exact, in 2013, with 76 gold auctions held, nearly 70 tons of gold were supplied to the market. Currently, what the State Bank is urgently implementing is just to operate this business again to increase transparency, increase gold supply, thereby reducing the difference in domestic and world gold prices, especially the SJC brand with world gold prices as well as SJC gold prices with other gold brands!

But the question is why doesn't Vietnam import gold?

According to Dr. Can Van Luc - BIDV chief economist, in reality, a certain amount of gold still needs to be imported, because Vietnam basically does not have many domestic gold sources. However, the management agency needs to calculate how much gold to import? At what time? to ensure the supply-demand relationship, control foreign exchange reserves, and at the same time contribute to stabilizing exchange rates and the macro economy. Going back to the story of 2013, the gold market was a very hot issue in the Vietnamese economy. At that time, we traded in gold, lent and borrowed in gold, which meant that banks could lend gold. Therefore, the gold market was at a very high level of goldification, causing many huge fluctuations.

Also expressing his views on gold market management and the State Bank's resumption of gold auctions, Dr. Le Xuan Nghia, member of the National Financial and Monetary Policy Advisory Council - an economic expert, analyzed that there are currently two major issues that need to be mentioned: preventing the goldization of the economy and reducing the gap between domestic and world gold prices. Regarding the issue of preventing goldization, we have done very well in the past. Currently, gold is banned from becoming a deposit and lending product in commercial banks. This means that goldization no longer exists.

In addition, it is a fact that in recent times, the difference between domestic gold prices and world gold prices has been very large, sometimes up to 30% - this is unreasonable. In particular, another problem is that the trade flow has been cut off, for a long time we have not imported gold bars, while domestic demand remains high. Each year, Vietnam produces about 600 kg of gold, while demand can be up to... 50 tons (according to the announcement of the World Gold Council). Therefore, to compensate for this demand, it is natural that gold smuggling or domestic gold price increases have occurred.

Therefore, to eliminate the price difference between domestic gold price and world gold price, it is simply necessary to use commercial measures, not monetary measures such as gold bar auctions.

According to this expert, the management agencies should allow some qualified gold and silver trading companies to import and export and trade gold bars and gold jewelry. The management agencies should only use the strongest tool at present, which is tax, for management. Vietnam's Customs is now e-Customs and can manage the import and export of gold very closely and very well. As for domestic consumption, we use electronic invoices to make gold trading transparent. On the other hand, organizing gold auctions can create a psychological impact in the short term, however, the most fundamental, long-term and consistent with international practice is to allow free import and export of gold, free production and trading of gold and tax.

Regarding the price difference between SJC gold and regular gold. According to Dr. Le Xuan Nghia, the quality of these two types of gold is actually not different, the price difference is due to the difference in brand. SJC is high because it is the exclusive brand of the State Bank, so many people think that the level of trust is higher, but the current high price difference is unreasonable. The State should return SJC gold to the brand that produced it, so that they can do business normally like other domestic gold brands. That way, we will have a completely stable gold market. Reality proves that in the world, we are almost the only one who still maintains the central bank's monopoly on gold, the monopoly on production, import and export of gold bars.

In response to concerns that if gold is imported and exported normally, where will we get foreign currency, which will lead to an increase in foreign exchange rates and affect imports and exports? Dr. Le Xuan Nghia frankly said that even if it is smuggling, foreign currency must be taken from Vietnam. Besides, the amount of foreign currency used to import gold will not be much. I calculate about 3 billion USD, compared to tens of billions of USD imported for other goods, it is nothing. So we just let businesses import and export normally. Currently, in the world, the strongest impact on gold prices is central banks buying for reserves, that is, speculators, many of whom buy too much, which has strongly affected the market. We should have researched buying gold for reserves, rather than the story of bringing gold reserves out to bid, stabilizing the market. In my opinion, this approach may be short-term, but it is not a fundamental approach!

And of course, when "cooling down" the gold market - a market that is currently too "hot" with a short-term solution, the results will not be much!

That means in the long run, to develop the gold market in a stable, healthy, transparent and sustainable manner, the Government needs to have in hand a “special remedy” to effectively manage this market, and especially to eliminate the monopoly in importing and trading gold bars. At the same time, there must be solutions to prevent and promptly respond to supply-demand imbalances or unusual price “fever”. In particular, the first priority is to build a legal corridor that is wide enough, with enough tools and capabilities to manage this important market.

Source