Where does cheap money go?

Money is pouring into banks.

Despite savings interest rates being at their lowest level in three years, idle funds continue to seek refuge in this channel. According to data from the State Bank of Vietnam (SBV), in September alone, deposits from economic organizations increased significantly by 217 trillion VND, reaching 6.23 million trillion VND. The rate of increase in institutional deposits has been faster than that of individual deposits in recent months. In September, individual deposits only increased by 16 trillion VND, while banks attracted over 6.449 million trillion VND. Furthermore, the proportion of cash in circulation in September also decreased to 8.53% from 8.7% in August.

The price of gold rings increased sharply in 2023.

With interest rates so low, a portion of the market's cash flow is seeking investment opportunities in the new year. Ms. Thanh Dieu (District 10, Ho Chi Minh City) said that by November 2023, her 2 billion VND savings account would mature, and the interest rate would be only 6% per year for a 12-month term, instead of nearly 10% per year previously. Therefore, she is exploring other investment opportunities, with real estate being her top priority. Ms. Dieu hopes that with the many solutions implemented recently, coupled with reduced real estate loan capital, the market will soon recover. "I'm currently hunting for cheap real estate; this takes time, so I hope to find a suitable house or land in the first few months of the year. For now, I'll keep my idle money in the bank," Ms. Dieu said.

Hunting for cheap real estate is a common mindset among many people in the current era of low capital. Ms. NH (District 3, Ho Chi Minh City) said that prices of new projects haven't decreased, and some have even increased, but prices in the secondary market have dropped quite sharply. If you're lucky, you might even find someone short on capital and be able to buy real estate at a good price. "I've had some capital deposited in the bank for several years, but now the interest rates are too low, so I'm looking to buy an apartment to rent out for monthly expenses. Many new projects, even those only a few years old, have seen significant price drops, so buying now is a good deal. Later, when the market recovers, prices will increase again, so I won't lose anything," Ms. NH said.

Meanwhile, Mr. Nguyen Huu Huan (Ho Chi Minh City University of Economics) believes that people are still hesitant to invest, so even though bank deposit interest rates have fallen below 6% per year, they still choose to deposit their money there. Therefore, idle funds are likely to be sheltered in savings accounts. "In channels like stocks and real estate, there hasn't been a clear recovery. Real estate market liquidity remains low, and supply and demand are still out of sync, so many people are still hesitant to participate. Investors in the stock market are still cautious, and exchange rates are difficult to predict… However, depending on each person's risk tolerance, they may see opportunities to 'buy at the bottom' in these investment channels," Mr. Huan said.

Financial expert Nguyen Tri Hieu predicts that the real estate market will warm up in 2024. This market is supported by several factors, such as falling interest rates returning to pre-Covid-19 levels; legal and institutional obstacles gradually being removed; planning at all levels being finalized; and increased public investment and infrastructure development. In the long term, real estate remains a good investment channel because Vietnam's economy is developing, and the demand for housing remains high. "Many people are still waiting for prices to fall before investing, but prices are unlikely to drop significantly given the limited supply and rising construction costs," Mr. Hieu assessed.

Gold continues to rise over the years.

Gold is currently experiencing a boom with continuously rising prices, so many people are choosing to accumulate gold little by little to save and preserve their capital. Ms. Thuy Anh ( Hanoi ) said she "has a knack" for gold, but honestly doesn't know how to assess where the profit is high or low. Having saved over 60 million VND, she decided to buy gold for convenient storage and use when needed. "Buying gold is a way to preserve it, whereas keeping cash means you tend to spend it, and I'm too lazy to sell gold, so it's still here. A few years ago, because I didn't have enough money to buy one SJC gold bar, I bought 6 taels of gold rings on the occasion of the God of Wealth festival for over 33 million dong. Since then, every time I have a few million dong, I save up enough to buy one tael to keep. By now, I have more than 30 taels of gold. I don't know how much capital I invested in all that gold, I only know that each tael cost about 5.5 - 5.8 million dong, so with the current price of 6 - 6.2 million dong/tael, I've already made a profit," Thuy Anh calculated, but also admitted that seeing the price increase made her feel lucky and prosperous, so she was very happy and had no intention of selling.

In 2023, the price of gold rings increased by more than 7 million VND per tael, reaching 61.5 - 61.8 million VND for selling and 60.2 - 60.5 million VND for buying. The rate of increase for gold rings was faster than that of gold bars, at nearly 13%. Meanwhile, SJC gold bars increased by more than 5 million VND/tael, equivalent to 7.4%.

Looking back over the past decade, the price of gold has more than doubled, from nearly 35 million VND per SJC gold bar to 72 million VND (a record high of 74 million VND in March 2022). Accordingly, from 2013 to 2018, the price of gold hovered around 35-36.5 million VND/ounce. In the following years, the price of gold increased quite strongly, from 9-31.5% per year, with the strongest increase being in 2019 at 31.5%, equivalent to more than 13 million VND/ounce. From 2020 to 2023, the average annual increase in the price of SJC gold bars was about 5 million VND/ounce. Therefore, those who habitually hold gold have profited.

Mr. Nguyen Ngoc Trong, Director of New Partner Gold Company, said that in recent years, gold rings have gradually gained more attention in the market. In terms of price, gold rings of the same 9999 purity as gold bars are 10-11 million VND/ounce cheaper, meaning buyers invest less capital. Compared to other investment channels, gold holders have made substantial profits over the past year. Currently, gold prices are rising sharply in the last months of the year as international gold prices have increased to over $2,000/ounce (an increase of $180/ounce compared to the beginning of the year, equivalent to a 9.8% increase). The reason for the high price of gold is the depreciation of the USD following information that the US Federal Reserve (Fed) will cut interest rates in the near future. The Fed has had a prolonged interest rate hike cycle from March 2021 to the present, raising interest rates from 0% to over 5% per year. In 2024, the Fed is projected to cut interest rates, and if this happens, the USD will fall, and gold will benefit from further increases. Additionally, various geopolitical developments in other countries are also supporting gold's upward trend. That's why many people still maintain the habit of accumulating gold, and they continue to profit.

It's clear that while savings remain the strongest channel for attracting money, falling interest rates are causing idle funds to consider shifting to other investment channels.

Domestic gold prices will follow international market prices, especially for gold rings. However, people need to be cautious when buying gold because domestic prices are not linked to international prices, creating an "unique market" with unpredictable fluctuations. For many years, SJC gold bars have been more than 10 million VND/ounce higher than international prices, sometimes reaching nearly 20 million VND/ounce; therefore, it is not advisable to hold gold during periods of sharp price increases and constant fluctuations.

Mr. Nguyen Ngoc Trong, Director of New Partner Gold Company

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