ADB highlights geopolitical tensions in gold market

April 12, 2024 | 09:00
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During a press briefing in Hanoi on April 11, Nguyen Ba Hung, chief economist at the Asian Development Bank (ADB) office in Vietnam, addressed fluctuating trends in the global gold market.
ADB highlights geopolitical tensions in gold market

“Gold typically serves as a risk management tool in times of political instability, with net purchases reflecting central banks' reactions to recent political upheavals,” he explained. "In a stable geopolitical context, the demand for gold tends to be low. Conversely, during times of geopolitical tension, the demand for gold escalates."

Domestically, the Vietnamese gold market is primarily influenced by supply and demand dynamics.

"Vietnam's gold market is quite unique in its sentiment. From a supply and demand perspective, domestic gold supply is very limited. Fluctuations, whether psychological or driven by trends, including low-interest monetary policies making other investment tools less attractive, typically causing gold demand to rise," Hung said. "When domestic demand increases without a corresponding increase in supply, prices inevitably rise."

Regarding the state management of gold, Hung said that the government's current approach to controlling the gold market remained administrative.

"While the ADB does not participate in amending Decree 24 on the management of gold trading activities, we believe that a balanced approach to state regulation from multiple angles would lead to a more efficiently operated gold market. Gold should be managed both as a monetary instrument and a financial product for investment, as well as a commodity subject to supply and demand," he said.

The stability of Vietnam's gold market is largely contingent on the revision of Decree 24. However, the SBV has yet to release any detailed information about the expected content or timeline for the amendment.

Delays in revising the decree, particularly on the monopoly of SJC gold bars and gold imports, are expected to make domestic gold prices increasingly unpredictable as global gold prices continue to rise.

Financial and banking expert Nguyen Tri Hieu suggested that if the monopoly on gold was eliminated, the price of gold bars could immediately decline by an additional VND10 million per ounce.

Currently, only the SBV is authorised to import gold, hence the supply on the market is poor, and any buying or selling activity can cause sudden price fluctuations.

"The domestic gold price is currently being propelled by global geopolitical tensions, a trend of central banks purchasing gold to diversify foreign exchange reserves, and consumer demand," Hieu said.

He recommended that the SBV allow gold trading enterprises to import gold to integrate the domestic market with the global market, while controlling it through annual import-export quotas.

"Undoubtedly, the SBV will consider various options in amending the contents of Decree 24. The existence of a transparent gold market will encourage participation from enterprises and gold trading organisations, facilitating the efficient mobilisation and utilisation of gold resources in the economy," Hieu said.

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By Nhat Minh

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