Central bank ponders fresh policy for gold

January 09, 2024 | 12:54
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The State Bank of Vietnam is set to update regulations in response to market changes and global uncertainties affecting gold demand and prices.
Central bank ponders  fresh policy for gold
The State Bank of Vietnam is considering a change to its policy on gold sales, photo Le Toan

At a conference last week held by the State Bank of Vietnam (SBV), Nguyen Anh Tuan, head of Foreign Exchange Management at the SBV, said that it will release a detailed report proposing updates to the decade-old Decree No.24/2012/ND-CP to reflect the current economic landscape.

“This decree, which granted exclusive rights to SJC for gold bar production, played a critical role in maintaining monetary stability. Over the past decade, the decree has helped insulate our exchange rate and banking operations from the fluctuations of the gold market,” Tuan said at the conference.

“The volatility in gold prices is a result of the current regulatory mechanisms. Our proposed revisions will concentrate on reassessing gold bar management and acknowledging that non-gold bar commodities should be regulated by market dynamics,” he added.

The objective of Decree 24 was to prevent gold from influencing the macroeconomy. However, amending Decree 24 is deemed essential as the economic and social conditions have since evolved.

Huynh Trung Khanh, vice chairman of the Vietnam Gold Trading Association and a senior advisor to the World Gold Council, observed a stark contrast between the high domestic demand for gold and a constrained supply, particularly of the SJC-branded gold.

“This imbalance is exacerbated by the SBV’s current policies on gold bar production. The existing supply-demand dissonance in our domestic market is pushing the internal gold prices up, diverging significantly from the international gold trends,” Khanh explained.

Gold’s traditional role as a financial safe haven is undergoing a revaluation. In times of geopolitical turmoil and economic downturns, gold has been a preferred asset. However, its current trajectory is less predictable.

“Historically thriving in low or negative real interest rate environments, gold’s appeal is challenged in periods of rising rates. While the link between gold prices and real interest rates has blurred, the likelihood of a continued upward trend in gold prices remains,” Khanh added.

On the issue of the recent surge in SJC gold prices, SBV Deputy Governor Dao Minh Tu expressed concerns.

“The recent spike in SJC gold prices can be attributed to speculative activities. We must be cautious, as an over-reliance on gold could potentially impact our foreign currency reserves and affect the value of VND,” Tu said.

Tran Huu Dang, CEO of ASEAN Gold, Silver, and Gemstone Company, noted the scarcity of SJC gold bars due to limited production, influencing price increases.

“Major domestic players, often anonymous, buy aggressively as global gold prices rise, pushing SJC gold bar prices significantly higher,” Dang said. “Moreover, the absence of gold imports means businesses lack raw materials for gold rings and jewellery. As a result, disruptions in raw gold supply cause plain gold ring prices to escalate well above global levels.”

Huynh Trung Khanh, Vice chairman Vietnam Gold Trading Association

Recent tensions in the Middle East have propelled gold prices beyond the $2,000 per ounce mark. Notably, in December, the precious metal’s price soared to a record-breaking high of $2,152 per ounce.

While fluctuations are expected in any price surge, gold has recorded its highest peak to date. Meanwhile, the USD-Index has hit a five-month low, nearing its first annual decline since 2020, approaching the 100-point mark.

Additionally, the yield on US 10-year Treasury bonds has reached its lowest point since July 2023, further enhancing gold’s appeal.

Global gold prices still have room to grow due to several factors. The US Federal Reserve is anticipated to halt interest rate hikes and is likely to start a downward trend, with projections of about three rate cuts in 2024, each by approximately 0.25-0.5 per cent per year.

A decrease in USD interest rates will subsequently lower US bond yields and the USD-Index, making gold even more attractive to investors.

Additionally, the demand for physical gold and jewellery typically increases at the end and beginning of each year. Also, central bank gold purchases in 2023 are forecasted to be on par with the 1,100 tonnes acquired in 2022. In short, the first quarter of 2024 looks promising for a continued rise in gold prices.

Gold prices forecast to continue rising in short term Gold prices forecast to continue rising in short term

Experts have predicted that gold prices, which reached a record high last week, may continue to rise in the short term, but the upward trend would be hard to sustain in the medium and long term.

PM orders prompt measures to stabilise domestic gold market PM orders prompt measures to stabilise domestic gold market

Prime Minister Pham Minh Chinh has signed to issue an official dispatch asking for measures to strengthen the management of the domestic gold market.

State does not encourage gold bar trading: SBV State does not encourage gold bar trading: SBV

The State does not encourage the trading of gold bars, protect their prices, nor accept too large differences between domestic and global gold prices, and between SJC and other types of gold bars, said Deputy Governor of the State Bank of Vietnam (SBV) Dao Minh Tu.

By Celine Luu

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