Tug of war over gold continues

photo source: giavang.net

For the first week of April, gold maintained its downward trajectory in the domestic market, hovering around the VND33.1 million mark for a tael ($1,261 per ounce). It is notable that in the past, domestic gold prices moved around at least VND3 million ($134) higher than global price quotes, due to controlling mechanisms set by the State Bank of Vietnam (SBV) to counter domestic gold consumption. However, in late March and April, domestic price tags for gold have plummeted below the global price, an unprecedented incident for the precious metal.

According to economic expert Nguyen Tri Hieu, gold prices in the international market have been driven up by geopolitical concerns and economic slowdowns. Contrary to its bullish tone last year, the US Federal Reserve is now quite reserved about a potential rate hike, which will dampen the USD’s growth while boosting gold, a traditional safe-haven asset.

“However, gold prices in Vietnam remain low because the domestic demand is weak after the SBV clamped down on gold usage. The economic situation in Vietnam and the VND are also doing quite well, further curbing the appeal of gold. As a result, gold prices in Vietnam are now lower than the global quotes,” Hieu said.

He predicted that for this year, international per ounce gold prices will stabilise around the $1,200 mark. Opposing forces, such as political headwinds and he Fed rate increase, will prevent gold from drastic fluctuations.

Meanwhile, Cao Thi Ngoc Dung, chairwoman and general director of Phu Nhuan Jewellery (PNJ), noted that gold bar sales at the firm have plunged last year and only made up 1 per cent of PNJ’s total revenue. The demand for bullion continues to dwindle compared to jewellery, which comprises 99 per cent of the firm’s sales.

“Contrary to the slowing demand for gold bars, we are still doing well on precious jewellery. Gold accounts for only 30 per cent of jewellery components, thus fluctuating gold prices do not have as strong an effect on our jewellery as on gold bars,” said Dung at the PNJ’s shareholders’ meeting.

Likewise, chairman of Vietnam Gold Business Corporation Tran Thanh Hai was bullish on the future of gold jewellery. According to him, although the demand for gold bars is weaker than before, Vietnamese people still favour gold jewellery as part of their long-standing tradition.

“I believe gold investors should remain cautious this year and keep a close watch on the global economic situations and the USD. From my perspective, it is unlikely that global gold prices will drop below $1,200 per ounce, so investors may choose to wait until prices go down a bit more to invest,” Hai said.