Online gold market a catalyst for confidence

February 17, 2022 | 08:00
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After a cautious 2021 in gold purchasing, the combination of falling volatility and adoption of tech could lead to a bumper 2022 as a whole.
Online gold market a catalyst for confidence
Physical gold stores finally reopened in October after the social distancing period ended

Last year’s demand for jewellery in Vietnam reached 12 tonnes, equivalent to an 11 per cent increase over the 2020 figure of 11 tonnes. But the fourth quarter of last year witnessed a 12 per cent on-year reduction to 2.5 tonnes, with retail investment falling 11 per cent on-year in Q4 to six tonnes, as the market was impeded severely by the current coronavirus pandemic, as stated by the World Gold Council (WGC).

Jewellery shops in Vietnam were allowed to reopen in October, but the severe effects of the pandemic have left consumers cautious about high-value purchases.

“Despite this, sales picked up in November, reflected in strong on-quarter growth, with promotional campaigns, weddings, and tech contributing to the recovery. The demand is likely to continue to pick up as Vietnam’s economic recovery boosts consumer confidence. Q4 GDP grew 5.2 per cent, and a major government stimulus package is likely to further support recovery, the WGC stated.

On-quarter retail demand rose, owing in part to worries about inflation, a fall in the savings rate, and depreciation in the VND. The annual bar and coin demand in Vietnam was 31 tonnes, a small rise over the 29 tonnes bought in 2020.

Andrew Naylor, regional CEO for Asia-Pacific (except China) at the WGC stated, “While many Vietnamese customers were apprehensive about high-value purchases, sales perked up in November with promotions and the wedding season. Cultural landmarks, combined with Vietnam’s revival of consumer confidence, led to a large boost in yearly consumer demand for gold.”

Economist Dinh The Hien highlighted, “Gold has advanced, partly driven by geopolitical tensions between Ukraine and Russia and amid anticipation of the upcoming Federal Reserve rate hike.”

Reduced demand growth is expected to continue throughout the year, although it may benefit from decreased price volatility.

Specifically, the demand for technology is likely to continue its modest recovery from a dismal 2020. The continuing construction of 5G infrastructure should contribute to the sustained growth of gold demand in this industry.

Naylor of the WGC also believed that institutional investment demand would be among the major catalysts for stronger gold demand. “The WGC launched some market research, specifically in Vietnam, and one of the key findings is that Vietnamese consumers are interested in buying gold through online channels. We still have physical gold – coins and rings – but we can just buy them online and they’re being stored on your behalf, and that just makes it much easier to trade and transact,” Naylor said.

“On the investment side, I think the financial market in Vietnam is deepening and we have more capital markets and investment products available. I think it would be really important that consumers or institutional investors in Vietnam have access to gold exchange-traded funds,” he said.

The Vietnam Gold Traders Association suggests that the manufacturing and selling of gold jewellery-fine art be removed from the list of conditional businesses in Appendix IV of the Law on Investment 2020. Unlike gold bars, gold jewellery is a regular commodity that is common in daily lives.

The association also proposes a fresh decree to replace Decree No.24/2012/ND-CP from 2012 on gold business activities. The legal corridor is no longer deemed consistent with the current scenario.

It also says that the State Bank of Vietnam should consider permitting gold jewellery producers to import raw gold.

The Ministry of Finance could also reduce the export tax on gold jewellery to zero, rather than 1 per cent as previously announced, in order to boost exporting competitiveness, regenerate foreign currency sources, and create more job opportunities.

Elimination of the rate would assist Vietnam’s gold jewellery and fine art items in competing with other ASEAN peers such as Thailand and Indonesia, as these countries are also taxed at zero.

The Vietnam Gold Traders Association (VGTA) underlined that since 2012, the State Bank of Vietnam (SBV) has successfully governed the gold market. As a consequence, the demand for gold investing reduced and individuals have a desire to purchase gold and hoard it.

In addition, the domestic gold market has been restructured and reorganised. The price variations of gold have a limited influence on macroeconomic stability, and gold bars are no longer utilised as a medium of exchange for goods and services.

Not only does the SBV not allow commercial banks to utilise gold as an asset, it also prohibits them from putting gold on their balance sheets as an asset. However, banks’ gold mobilisation does not have an effect on the gold market’s long-term stability or growth.

The VGTA also explained the large price gap between domestic and international bullion prices.

For over a decade, jewellery companies have been prohibited from importing raw gold. Although gold jewellery manufacturing firms have a high demand for raw gold, the government’s aim is to lower the trade imbalance to create foreign currency reserves, and hence the SBV continues to prohibit raw gold imports, as VGTA stated.

Additionally, efforts to combat gold smuggling across the border have been stepped up this year, limiting the supply of gold trafficked into Vietnam. While gold availability is restricted, firms must continue to purchase raw gold on the market to manufacture jewellery. When the demand exceeds supply, the domestic gold price often exceeds the international price.

The WGC believed that with generally robust economic growth expected to continue in 2022, consumer-driven demand for jewellery and technology is anticipated to remain robust.

Nguyen Thanh Long - Chairman Vietnam Gold Traders Association

Online gold market a catalyst for confidence

Investors should maintain gold due to the growing tendency of global inflation. On the other hand, the recent tightening of monetary policy by major central banks is a significant threat to gold’s optimistic prognosis.

Some analysts predicted that gold prices would fall below $1,600/oz in 2022, but I predict that gold prices will remain in the $1,800-1,900/oz range. If the gold policy is revised to reflect the current circumstances, the volatility of the domestic gold price will closely follow the international gold price.

If the gold policy is changed to reflect the current situation, the domestic gold price will move in the same direction as the price of gold in the rest of the world.

This might result in a narrowing of the gap between worldwide and local gold prices.

Phan Dung Khanh - Financial expert

Online gold market a catalyst for confidence

Investors should still include gold in their 2022 portfolio, but just a small proportion, since the discrepancy between global and Vietnam’s gold has reached tens of millions of VND.

Inflation in the United States is at its highest level in years, while inflation in Europe has likewise been at or near its greatest level for decades. These factors will help to keep gold prices stable in the foreseeable future.

Investors continue to see gold as a safe shelter. As a result, it is a good idea to include some gold in one’s portfolio. While gold is an important aspect of a well-diversified portfolio, it should not be the sole one.

The trend towards prudent investing is reviving. Numerous central banks across the globe are tightening monetary policies. Many fear that venture capital, equities, real estate, and cryptocurrency will suffer, while secure funding channels will prosper.

In this scenario, investors with low-risk tolerance should hold around 30-40 per cent of their assets in gold.

By Luu Huong

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