Adjustments holding promise for gold

Fluctuating exchange rates are affecting many global economies, meaning gold prices are not stable, photo Le Toan

Last week, the National Assembly Standing Committee discussed concerns raised in an April public petitions report, particularly about the volatility of the gold price and its negative impact on the economy and living standards.

Duong Thanh Binh, Chairman of the National Assembly’s Committee of Ombudsman, said, “The government and prime minister should intensify the inspection and supervision of the gold market and its business activities to curb smuggling, profiteering, speculation, and manipulation, ensuring market stability and transparency.”

Deputy Minister of Public Security Le Quoc Hung characterised the recent fluctuations in gold prices as “extremely complex.” He said that the ministry had been closely monitoring the situation and proposed multiple measures to enhance monetary and national security.

“A crucial measure currently is to augment gold reserves and manage the circulation of SJC gold bars,” he said.

To stabilise the market, the Ministry of Public Security has recommended that the government instruct the State Bank of Vietnam (SBV) to quickly develop and enforce regulatory intervention mechanisms such as controls over buying and selling prices and market supply and demand.

“The authorities should also implement regulations on the maximum allowable spread between buying and selling prices, as well as oversee the management of gold bars and the production of jewellery and crafts,” Hung added.

In a similar move, the Ministry of Finance last week also announced enhanced measures to manage, monitor, and combat smuggling and illegal trading of gold.

Minister of Finance Ho Duc Phoc directed the general director of the General Department of Vietnam Customs to ensure proactive and regular coordination with police, border guards, and market management authorities.

“This directive focuses on intensifying inspections, investigations, and timely actions to halt smuggling, commercial fraud, and illegal goods transportation across borders, with a particular focus on combating major cases involving gold and foreign currency,” Phoc said.

Additionally, Phoc tasked the General Department of Taxation with instructing localities’ departments of tax to collaborate with local governments to enforce compliance with electronic invoicing regulations among businesses and gold traders.

“Tax offices are required to work closely with police and market management to detect and strictly address violations related to taxes and invoicing, referring any cases with criminal indicators to the police for legal action,” the minister said.

Economist Tran Duy Phuong remarked on the effectiveness of recent regulatory actions, noting, “The recent firm steps taken by the authorities make a sharp and unwarranted surge in SJC gold bar prices unlikely, similar to what occurred last week.”

He added that the SBV planned to continue auctions to align with market demand, projecting that the SJC gold bar prices could stabilise. Phuong also advised the public against purchasing gold presently due to the associated risks.

In response to an inquiry about gold’s viability as an investment option in 2024, Le Anh Tuan, director of Investment at Dragon Capital said, “Predicting its performance on a monthly, quarterly, or annual basis is challenging. When compared to other investment channels like bonds, stocks, and real estate over longer periods like 10-20 years or even 50 years, gold has historically not been a high-performing asset.”

A senior executive from a leading bank voiced concerns about market demands to stabilise the price of SJC gold bars amid fluctuating exchange rates, a challenge affecting many global economies, including Vietnam. “Exchange rate fluctuations impact everyone - both individuals and businesses alike. As the USD appreciates, the cost of imported goods rises, which in turn increases prices and inflation,” the expert told VIR. “Fluctuations in the price of SJC gold bars only impact a small segment of the population.”

She suggested that individuals alternatively invest in plain gold rings instead of this scarce commodity.

“I have long been frustrated with the practice of stabilising gold bar prices to appease public sentiment,” she said.

She questioned the rationale behind using foreign reserves for stabilising gold prices when there are viable alternatives like jewellery or plain rings. Additionally, she pointed out that given the exclusivity of this commodity, simply increasing supply was not a straightforward fix. She advocated for a long-term strategy to dismantle the monopoly on gold bars.

Meanwhile, economist Dinh Trong Thinh believes that in the Vietnam’s current economic context, there is no pressing need to establish a gold exchange or permit enterprises to import gold for domestic needs.

He noted that importing gold would necessitate significant US dollar allocations for businesses to purchase gold, further necessitating a liberalisation of the gold production and trading regime.

“We must carefully evaluate the purpose of establishing a gold exchange, especially given our stringent control over foreign exchanges to support the national economy,” he added.

According to the World Gold Council, Vietnam’s gold consumption reached 43 tonnes in 2022, up 37 per cent from 2021 and the highest in ASEAN. Last year, 81 per cent of investors in Vietnam allocated funds to gold, and expressed willingness to reinvest in the metal. This percentage surpasses that of China (72 per cent), India (67 per cent), and the global average (45 per cent).

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